Save Money for Retirement With the Savers Credit
Little Known Tax Incentive Helps Many Save for Their Golden Years
Jul 1, 2009
Every April 15 in the United States, the tax man comes knocking on the door (figuratively speaking, of course). With all the financial considerations, deductions, accounting, and stacks of IRS forms, it is easy for taxpayers to gloss over some important money-savers that could put more cash in their collective pockets. One of these money-saving opportunities comes in the form of a retirement planning tax advantage, and it can really help those who find it difficult to save money for their golden years.
What Is the Saver’s Credit?
Like any tax advantage, the Credit for Qualified Retirement Savings Contributions (IRS Form 8880) effectively subsidizes a portion of retirement savings for lower- and moderate-income individuals. According to the Internal Revenue Service, if a taxpayer makes voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, he or she may be able to take advantage of this highly advantageous savings opportunity.
This IRS offering stands in addition to other money-saving tax incentives which may result from the person’s complementary retirement contributions across a number of investment vehicles. For example, most workers who qualify may also deduct their contributions to a Traditional IRA on their annual returns.
How Does the Saver’s Credit Work?
This financial savings advantage is calculated by subtracting the amount of distributions received from retirement plans from the contributions made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for the return. The resulting credit is a percentage of the qualifying contribution amount where taxpayers with the least income are qualified for the highest credit amount up to $2000 (married) or $1000 (single).
Who Is Eligible for the Saver’s Credit?
Eligibility for this financially advantageous retirement planning savings opportunity falls within strict income limits as the offering is geared toward helping lower-and moderate-income individuals save for their golden years. Those under the age of 18, full-time students, and dependents cannot qualify for this tax break. 2008 eligibility guidelines are as follows:
- Married couples filing jointly with incomes up to $53,000
- Married individuals filing separately and singles with incomes up to $26,500
- Heads of Household with incomes up to $39,750
Keep in mind that this IRS offering may be reduced or eliminated if the person withdraws a distribution from a retirement account two years prior to the due date of the return. Though often overlooked, the Saver’s Credit is a great way for lower- and moderate-income individuals to save money for their golden years during tax time.
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