Take Credit for Your Retirement
Retirement savings makes sense for the future but there are also some tax benefits that help along the way. Particularly a retirement savings credit of up to $2,000 if you contribute to a 401(k) or IRA.
Here are a few things to be aware of regarding the Saver’s Credit:
1. The Saver’s Credit is formally known as the Retirement Savings Contribution Credit. The credit can be worth up to $2,000 for married couples filing a joint return or $1,000 for single taxpayers. It reduces the amount of tax you owe but is not a “refundable” credit so if the credit is greater than the amount of tax you owe, you can’t get a refund for the unused portion of the credit.
2. Your filing status and the amount of your income affect whether you are eligible for the credit. You may be eligible for the credit on your 2012 tax return if your filing status and income are:
• Single, married filing separately or qualifying widow or widower, with income up to $28,750
• Head of Household with income up to $43,125
• Married Filing Jointly, with income up to $57,500
3. You must be at least 18 years of age to be eligible. You also cannot have been a full-time student in 2012 or be claimed as a dependent on someone else’s tax return.
4. You must contribute to a qualified retirement plan by the due date of your tax return in order to claim the credit. The due date for most people is April 15.
5. The credit is claimed on IRS Form 8880, Credit for Qualified Retirement Savings Contributions and is submitted as part of your federal return.
6. Depending on your income, you may be eligible for other tax benefits if you contribute to a retirement plan. For example, you may be able to deduct all or part of your contributions to a traditional IRA.
For more information on the Saver’s Credit contact us at (480) 888-7111 or see IRS Publication 590, Individual Retirement Arrangements. Also see Publication 4703, Retirement Savings Contributions Credit, and Form 8880. They are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
By: Evan A. Nielsen, Esq. (Licensed in California)