Retirement Tax Credit
A special retirement tax credit is available in 2013 and years ahead. This tax credit helps low and moderate income workers to save for retirement. The retirement savings contributions credit, otherwise known as the saver’s credit is available in addition to any other tax savings. Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. This is great news for taxpayers that don’t own a business who have a harder time finding deductions. The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs.
It is not too late to make qualifying retirement contributions and get the saver’s credit on your 2013 tax return. You actually have until April 15, 2014 to set up a new individual retirement arrangement or add money to an existing IRS for 2013. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2014 contributions soon so their employer can begin withholding them in January.
Who can claim the saver’s credit?
- Married couples filing jointly with incomes up to $60,000 in 2014;
- Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
- Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014.
Details of the retirement tax credit
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Special rules that apply to the saver’s credit:
- Eligible taxpayers must be at least 18 years of age.
- Anyone claimed as a dependent on someone else’s return cannot take the credit.
- A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
- Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2013, this rule applies to distributions received after 2010 and before the due date, including extensions, of the 2013 return. Form 8880 and its instructions have details on making this computation.