IRS Tax Tip 2009-49 informs taxpayers that when you make eligible contributions to an employer-sponsored retirement
plan or to an individual retirement arrangement, you may be able to
take a tax credit. The Savers Credit, formally known as the
Retirement Savings Contributions Credit, applies to individuals with a
filing status and income of:
- Single with income up to $26,500
- Head of Household with income up to $39,750
- Married Filing Jointly, with incomes up to $53,000
To be eligible for the credit you must be at least age 18, not a
full-time student, and cannot be claimed as a dependent on another
person's return. If you make eligible contributions to a qualified
IRA, 401(k) and certain other retirement plans, you may be able to take
a credit of up to $1,000 or up to $2,000 if filing jointly. The credit
is a percentage of the qualifying contribution amount, with the highest
rate for taxpayers with the least income. When figuring this credit,
you generally must subtract the amount of distributions you have
received from your retirement plans from the contributions you have
made. This rule applies for distributions starting two years before the
year the credit is claimed and ending with the filing deadline for that
tax return. The Retirement Savings Contributions Credit is in
addition to other tax benefits which may result from the retirement
contributions. For example, most workers at these income levels may
deduct all or part of their contributions to a traditional IRA.
Contributions to a regular 401(k) plan are not subject to income tax
until withdrawn from the plan. For more information, review IRS
Publication 590, Individual Retirement Arrangements, Publication 4703,
Retirement Savings Contributions Credit and Form 8880, Credit for
Qualified Retirement Savings Contributions. The publications and form
can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM
(800-829-3676).
Posted by
Kya Blackstone, Associate Editor, Wealth Strategies Journal.
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