Low- and moderate-income workers
can take steps now to save for retirement and earn a special tax credit in 2011
and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers voluntarily
contribute to IRAs and to 401(k) plans and similar workplace retirement
programs. Also known as the retirement savings contributions credit, the
saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement
contributions and get the saver’s credit on their 2011 tax return. People have
until April 17, 2012, to set up a new individual retirement arrangement or add
money to an existing IRA and still get credit for 2011. However, elective
deferrals must be made by the end of the year to a 401(k) plan or similar
workplace program, such as a 403(b) plan for employees of public schools and
certain tax-exempt organizations, a governmental 457 plan for state or local
government employees, and the Thrift Savings Plan for federal employees.
Employees who are unable to set aside money for this year may want to schedule
their 2012 contributions soon so their employer can begin withholding them in
The saver’s credit can be claimed by:
couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in
of Household with incomes up to $42,375 in 2011 or $43,125 in 2012; and
individuals filing separately and singles with incomes up to $28,250 in
2011 or $28,750 in 2012.
Like other tax credits, the saver’s credit can increase a
taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is
$1,000, $2,000 for married couples, the IRS cautioned that it is often much
less and, due in part to the impact of other deductions and credits, may, in
fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on his or her filing status,
adjusted gross income, tax liability and amount contributed to qualifying
retirement programs. Form8880 is used to claim
the saver’s credit, and its instructions have details on figuring the credit
In tax-year 2009, the most recent year for which complete figures
are available, saver’s credits totaling just over $1 billion were claimed on
just over 6.25 million individual income tax returns. Saver’s credits claimed
on these returns averaged $202 for joint filers, $159 for heads of household
and $121 for single filers.
The saver’s credit supplements other tax benefits available to
people who set money aside for retirement. For example, most workers may deduct
their contributions to a traditional IRA. Though Roth IRA contributions are not
deductible, qualifying withdrawals, usually after retirement, are tax-free.
Normally, contributions to 401(k) and similar workplace plans are not taxed
Other special rules that apply to the saver’s credit include the
taxpayers must be at least 18 years of age.
claimed as a dependent on someone else’s return cannot take the credit.
student cannot take the credit. A person enrolled as a full-time student
during any part of 5 calendar months during the year is considered a
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
in 2002 as a temporary provision, the saver’s credit was made a permanent
part of the tax code in legislation enacted in 2006. To help preserve the
value of the credit, income limits are now adjusted annually to keep pace
with inflation. More information about the credit is on IRS.gov.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.
If you feel that you are eligible for this
tax credit, please schedule an appointment with the nearest Liberty Tax office
today. Tax season is right around the
corner and you want to make sure you are prepared.