Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Not many people are aware of the saver’s credit, which helps offset part of the first $2,000 that taxpayers contribute to IRAs , Roth IRAs, 401K and other retirement plans.  This credit is also known as the retirement savings contributions credit.

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

The following people qualify for the saver’s credit:

• Married couples filing jointly with incomes below $53,000 ($55,500 in 2009),
• Taxpayers filing as head of household, with income below $39,750 ($41,625 in 2009), and
• Single taxpayers (including married individuals who file separately) with incomes up to $26,500 in 2008 (or $27,750 in 2009)

While these income limits may seem low, if you are starting a new business, are unemployed or underemployed in any given tax year, this tax credit provides incentive to continue saving for your retirement by giving you some of your contributions back in the form of a credit.

The saver’s credit is a refundable tax credit which means it can increase your refund or reduce any tax you owe.  The maximum saver’s credit is $1,000 ($2,000 for married couples), but most people qualify for much less, depending on how much you save in your retirement account, your income, and other deductions and credits.

To claim the saver’s credit, file Form 8880 and attach it to your tax return (Form 1040).  This credit was made a permanent part of the tax code in 2006, and is adjusted annually to keep up with inflation.

For more information about the saver’s tax credit, please visit the IRS website at www.irs.gov.

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