Saving For Retirement? Shave $1,000 Off Taxes With The Saver’s Credit
If you’ve been socking away retirement money, you could be eligible for the Retirement Savings Contributions Credit, aka the Saver’s Credit. This often-overlooked credit rewards you for having the good financial sense to build your nest egg early by shaving off as much as $1,000 on your tax bill, $2,000 if filing jointly.
It’s simple: make eligible contributions to a qualified retirement plan—like an employer-sponsored plan or IRA—and you can claim the credit. The saver’s credit appears on the Form 1040 and Form 1040A tax returns and works as a credit rather than a deduction. Tax credits are generally a better deal because they immediately reduce the amount of tax you owe to the IRS. Contributing to your retirement plan to reduce your taxes is a win-win situation—you pay less income tax, it doesn’t cost you anything to move around your money, plus you build a sound future for yourself.
Details on eligibility and details:
- Income limits: The credit you receive depends on your income, filing status, and how much you put into your retirement plans. The saver’s credit is specifically to reward lower-wage earners saving for retirement, so the lower your income, the larger your credit will be. If you are single, married but filing separately, or a qualifying widow with income up to $27,750; or head of household, with income up to $41,625; married and filing jointly, with income up to $55,500 you will qualify for this credit.
- Eligibility: You must be over 18, you can’t be a full-time student, and can’t be claimed as a dependent on another person’s return.
- Contributions: Retirement accounts that qualify include traditional and Roth IRAs, employer-sponsored 401(k) plans, Savings Incentive Match Plan for Employee (SIMPLE) plan, a 403(b), governmental 457 plan, or salary reduction Simplified Employee Pensions, of SEP. However, credit is calculated on your total contributions to all eligible retirement accounts, not for contributions to each. If you have an employer-sponsored retirement plan, check out “Adding to retirement plan helps reduce your tax bill,” on how to take advantages of deferring a portion of salary towards retirement.
- Tip: The savers credit is nonrefundable, meaning you can’t take advantage of any excess credit amount to get a refund; so if you don’t owe taxes, the credit can’t be used on you.
- How To: Finally, make sure to enter all retirement saving amounts on Form 8880, Credit for Qualified Retirement Savings Contributions, and calculate the exact credit rate and amount. Once you calculate your credit, transfer it to line 51 of your 1040 or line 32 if you file the 1040A.
The key to this credit is participation in retirement accounts, reports Bankrate.com. So use this as a golden opportunity to motivate yourself to open a retirement account and contribute money for the 2009 tax year before the April 15 deadline. Check out more details and publications at IRS.gov.
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