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  • Tax Credit for Retirement Savings Contributions
  • Adjusted Gross Income

You may be eligible to receive a tax credit of up to 50 percent of the amount you contribute to a retirement savings plan this year if your adjusted gross income is below $26,000 (single) or $52,000 (married) and you meet other eligibility requirements. The credit is available on contributions of up to $2,000 made to a 401(k), 457, 403(b), regular IRA, Roth IRA, SIMPLE or SEP retirement plan, or to any combination of these plans.

For example, if your adjusted gross income is $14,500 and you file a single tax return, you could receive a tax credit of $1,000 for contributing $2,000 to the 401(k) plan. This credit is offered in addition to your regular tax deferral on contributions.

Match your adjusted gross income and filing status to the chart below to determine the credit you may be eligible to receive. (If you file a 1040A, your adjusted gross income is on Line 19; if you file a 1040EZ, it is on line 4; and if you file a 1040, it is on Line 33.)

Joint Return
Head of Household
Single or Other
Over
Under
Over
Under
Over
Under
Credit Rate
$0
$31,000
$0
$23,250
$0
$15,500
50%
$31,001
$34,001
$23,251
$25,500
$15,501
$17,000
20%
$34,001
$52,000
$25,501
$39,000
$17,001
$26,000
10%
$52,001
 
$39,001
 
$26,001
 
0%

 

Remember that deferrals to the 457 plan and the 401(k) plan reduce your adjusted gross income, so if you are close to one of these limits, you may be able to move into the next category by increasing your deferrals.

 

Some Disqualifiers
If you don’t pay any taxes, you won’t receive any value from the credit. Full-time students, anyone under age 18, and dependents are not eligible for this credit.

 

In addition, you won’t be able to claim the credit if you have made corresponding retirement savings withdrawals recently. The amount of any contribution eligible for the credit for the year is reduced by the amount of distributions you (or your spouse if you file a joint return) have received from any of the eligible plans during the previous two years. (Rollovers don’t count as withdrawals, however.)

 

How to Claim the Credit
A personal tax credit reduces the amount of tax you owe to the Internal Revenue Service for the year. To claim the Retirement Savings Credit, complete IRS Form 8880 and attach it to your tax return. If you have not yet paid your taxes, it will reduce the amount you will have to pay when you file your tax return. If all of your taxes have been withheld by your employer, it would entitle you to a refund.

 

How It Will Help You
Each year that you are able to take advantage of the full amount of this tax credit, you could set aside $2,000 for retirement at an actual cost to you of only $700, after your tax deferral and tax credit. That’s an immediate return of 285 percent!

 

For More Information
Additional information is available from the IRS. Visit their Internet site at http://www.irs.ustreas.gov/ or call them at 1-800-829-3676. Select TeleTax Topic 610 or download Form 8880 for more information.