[Updated with 2012 and 2013 information] Despite tough economic times, you should not lose sight of your longer term retirement savings. This is where the little known IRS recommended 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 credit is available in addition to any other tax savings that apply to the contributions.
The maximum savers credit is up to $1,000 for single filers and up to $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 to a retirement plan . You have until April 15, 2013, to open an IRA account or add money to an existing IRA and still get the savers credit for 2012. 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 tax return.
Because the credit is for lower income households, there are income limits in claiming the savers credit which are as follows:
- For Married couples filing jointly : Maximum adjusted gross income (AGI) – ; $57,500 in 2012 or $59,000 in 2013;
- For Heads of Household : Maximum adjusted gross income (AGI) – $43,125 in 2012 or $44,250 in 2013; and
- For Married individuals filing separately and Singles : Maximum adjusted gross income (AGI) – $28,750 in 2012 or $29,500 in 2013.
Since the savers credit is a non-refundable tax credit and not a deduction or refundable credit (like the EITC), you’ll only get it if you 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 6.1 million individual income tax returns. Saver’s credits claimed on these returns averaged $204 for joint filers, $165 for heads of household and $122 for single filers. The credit is less than the maximum amount due in part to the impact of other deductions and credits.(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.