What is Savers Credit?
What is Savers Credit?
Savers credit or retirement savers credit is also called the retirement savings contribution credit and is the tax credit that the IRS allows low and moderate income workers to claim to encourage them to save for retirement. The retirement savers tax credit is a nonrefundable tax credit so cannot be more than the tax amount.
How does retirement savers credit work?
Retirement savers credit or retirement savings contribution credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401k plans and similar workplace retirement plans.
How much is the retirement saver's credit?
The retirement saver's credit can be up to $1,000 ($2,000 if married filing jointly) for making eligible contributions to an employer sponsored retirement plan or to an IRA account. The retirement savers credit is a percentage of the qualifying contributions with the highest rate for taxpayers with the least income. In another word, the less you make income wise, the more retirement savers credit rate you are entitled to. This encourages low income taxpayers to save for retirement and get the high percentage retirement savers tax credit.
The retirement savers tax credit can be 10%, 20% or 50% depending on the tax filing status.
Who cannot claim the retirement savers tax credit?
A taxpayer cannot claim the retirement savers credit if:
his or her AGI si more than $26,000 ($39,000 for head of household, $52,000 for married filing jointly)
he or she is under 18 at year end
he or she is claimed as a dependent on another tax return
he or she is a full time student
What are eligible contributions for retirement savers credit?
Contributions to a traditional IRA or Roth IRA and salary reduction contributions such as 401k are eligible for retirement saver's tax credit.
What are the effects of distributions on savers credit?
The eligible contributions must be reduced by any distributions from a Roth IRA or taxable distribution such as from a traditional IRA, 401k, 403b which were received, for example, after 2004 and before the due date of the 2007 tax return.
Do I include the military retirement plan distributions?
No. Do not include the military retirement plan distributions when reducing the qualified contributions.
On what tax form is the retirement savers credit calculated?
The retirement savers credit is calculated in the IRS tax form 8880 called Credit for Qualified Retirement Savings Contributions and then claimed on the 1040A or 1040.