The Saver’s Credit is a tax credit that provides an added benefit for low to moderate-income workers who save for retirement. The saver’s credit will offset part of the first $2,000 that workers contribute to their IRAs or 401(k) plans (as well as other similar employer-sponsored retirement plan. This credit is also known as the Retirement Savings Contributions Credit.
The maximum credit that a single taxpayer can receive is $1,000. Married taxpayers can receive a maximum credit of $2,000. This credit is refundable which means that it can increase your refund or reduce your tax owed. The actual amount of the credit is based on the taxpayer’s filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement plans.
The Saver’s Credit supplements other tax benefits typically available for those who make retirement contributions such as the ability to deduct IRA contributions and make pre-tax 401(k) or 403(b) contributions.
The Saver’s Credit can be claimed by:
* Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
* Heads of Household with incomes up to $42,375 in 2011 or $43,125 in 2012; and
* Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.
Additional requirements to be eligible for this credit include:
* Eligible taxpayers must be at least 18 years of age.
* Anyone claimed as a dependent on someone else’s return cannot take the credit.
* A student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a student.
* Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making this computation.
In order to claim this credit for 2011, you will need to make your qualifying IRA contribution by April 17, 2012 or make your contribution to your employer sponsored retirement plan (e.g., 401(k), 403(b), 457 Plan, and Thrift Savings Plan) by December 31, 2011.
For more information about the Saver’s Credit visit the IRS’ web site at http://www.irs.gov/newsroom/article/0,,id=107686,00.html