Despite tough economic times, you should not lose sight of your longer term retirement savings. This is where the savers credit can help you to keep contributing towards a retirement plans without undue financial stress. The saver’s credit, also known as the retirement savings contributions credit, helps offset part of the first $2,000 workers voluntarily contribute to tax advantaged retirement plans such as IRAs and to 401(k).
The maximum savers credit is $1,000 for single filers and $2,000 for married couples. The actual amount is based on your filing status, adjusted gross income, tax liability and amount contributed to retirement plans.
How to Claim the Credit
The credit is generally claimed in your tax return, assuming you have made qualifying retirement contributions for the year. You have until April 17, 2012, to open an IRA account or add money to an existing IRA and still get the savers credit for 2011. However for employer sponsored accounts like a 401(k) or 403(b), you must make all contributions by year end to claim the credit in your 2011 tax return.
Their are also income limits in claiming the savers credit which are as follows:
- For Married couples filing jointly : Maximum adjusted gross income (AGI) – $56,500 in 2011 or $57,500 in 2012;
- For Heads of Household : Maximum adjusted gross income (AGI) – $42,375 in 2011 or $43,125 in 2012; and
- For Married individuals filing separately and singles : Maximum adjusted gross income (AGI) -$28,250 in 2011 or $28,750 in 2012.
The saver’s credit is available in addition to any other tax savings that apply. Since it is a tax credit and not a deduction, you still get it even if you don’t owe taxes. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
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. (Source : IRS)
To claim the credit, eligible taxpayers must also be at least 18 years of age and not be enrolled as a full-time student. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. I encourage you to subscribe (free) via RSS, Email, Facebook or Twitter to get updated information on next years credit.
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“Since it is a tax credit and not a deduction, you still get it even if you don’t owe taxes.”
That is incorrect. In my experience this is how it works: You only get the savers’ credit to offset your taxes nothing more than that.
For instance lets say you are married filing jointly and should qualify for a max of $2000 savers credit. If your taxes according to the tax table are $1400 you will get savers credit for $1400 only to offset your taxes, not a dollar more.
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