Drum Roll Please! Let me introduce one of the few opportunities taxpayers have to stack tax breaks – Retirement Savings Contribution. Yeah, it’s true, you can double-dip on your federal tax return by claiming a deduction and a credit for the same savings.
Retirement Savings Contributions aka Saver’s Credit
Most workers can deduct all or part of their contributions to certain retirement accounts, e.g. Traditional IRA, 401k, 403b. On top of this tax deduction, you may be eligible for a tax credit up to $2,000. Shhh…..Don’t remind Congress, they’ll probably ditch both tax benefits for eligible taxpayers who make retirement plan contributions. Let’s take a look at the Retirement Savings Credit, also known as Saver’s Credit
What You Need To Know About The Saver’s Credit
You may be eligible for a tax credit if you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement account.
Eligibility
Age and personal dependent limits:
- Age 18 or older;
- Not a full-time student;
- Not claimed as a dependent on another person’s return
Income Limits
Adjusted Gross Income (AGI) for 2012 can not be more than:
- $57,500 if your filing status is married filing jointly
- $43,125 if your filing status is head of household, or
- $28,750 if your filing status is single, married filing separately, or qualifying widow(er)
In 2011, adjusted gross income income limits were: $56,500 if your filing status is married filing jointly, $42,375 if your filing status is head of household, or $28,250 if your filing status is single, married filing separately, or qualifying widow(er).
* If you filed 2011 Form 1040, look at Line 37 for your adjusted gross income.
Qualified Contributions
Example of contributions that qualify for the Saver’s Credit:
- Traditional IRA
- Roth IRA
- Voluntary deferrals to a 401k, 403b tax-sheltered annuity plans
- State and local government plans called 457
- Simplified Employee Pension (SEP), Savings Investment Match Plans for Employees of Small Employers (SIMPLE)
- Elective employee contribution to qualified retirement plan, including federal Thrift Savings Plan
- Contributions to a 501(c)(18)
* Look In Box 12 of your W-2, do you have the letter code D, E, F, G, H, or S? If you have one of these letter, you might have an eligible contribution that may qualify for the Saver’s Credit. (See an earlier blog post for definitions for retirement plans.)
How Much is the Credit Worth?
The credit varies from 10% to 50%, depending upon filing status, income and contribution amount. Maximum savers credit can be as much as $1,000 if single or $2,000 for married filing jointly.
Note if you took a distribution: If you received a distribution from any IRA, plan, or annuity that qualifies as an eligible contribution in the current tax year, previous two years, or before the due date of the current tax year filing period, you must reduce the amount of your eligible contribution by the amount of the distribution you received.
How To Claim Retirement Savings Contribution aka Saver’s Credit
1. First complete Form 8880, Credit for Qualified Retirement Savings Contributions. (Link to download PDF 2011 Form 8880.) (To be more exact: you will need to determine your adjusted gross income before you can calculate your Saver’s Credit.)
2. Then enter the calculated credit on your main tax filing form: Line 50 for Form 1040; Line 32 for Form 1040A, line 32; or Line 47 for Form 1040NR. (Link to download PDF 2011 Form 1040 and 1040A.)
There you have it, one of the few methods to double-dip on your federal tax return by claiming a deduction and a credit for the same savings. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is a tax credit to help low and middle income income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an eligible retirement plan.
More Tax Tip Information
- Read IRS Publication 590, Individual Retirement Arrangements (IRAs) and IRS Pub Publication 4703, Retirement Savings Contributions Credit.
- 2011 federal tax return forms, to go to the Internal Revenue Service website (http://www.irs.gov/).
- Read an earlier post on 2011 Federal Tax Brackets, Standard Deductions, and Personal and Dependent Exemptions.
- Federal Tax forms for 2011 can also be found under the ‘Resources‘ tab here at MoneyandMap.com or at IRS.gov.
- Plan for 2012 tax year by reviewing 2012 Federal Tax Brackets, Standard Deductions, and Personal and Dependent Exemptions.
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