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Retirement Savings Contributions Savers Credit

Saver’s Credit for Retirement Contributions

What Is the Saver’s Credit?
The Credit for Qualified Retirement Savings Contributions (IRS Form 8880) effectively subsidizes a portion of retirement savings for lower- and moderate-income individuals.

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.

If you make voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit, in addition to other tax benefits which may result from the retirement contributions.

Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

Formally known as the “Retirement Savings Contributions Credit,” the Saver’s Credit applies to:

Married individuals filing separately and single with incomes up to $26,500 for 2010
Married couples, filing jointly, with incomes up to $53,000 for 2010
Head of Household with incomes up to $39,750 for 2010

You must be at least age 18, not be a full-time student, and cannot be claimed as a dependent on another person’s return to qualify.

You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The amount of the credit is determined by your filing status, your adjusted gross income, and your other retirement contributions.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income. claimed and ending with the filing deadline for that tax return.

For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions.

The publication and form can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).