Tax Credit for Retirement Savings Contributions
Tip It!Guess what? If you’re single and your adjusted gross income (AGI) is $25k or less ($50k for married couples), then you’re entitled to a credit of 10-50% on up to $2,000 in contributions to qualified retirement savings plans. Eligible plans include 401(k) and 403(b) plans as well as traditional and Roth IRAs. This credit comes in addition to the tax deduction that you get for making the contributions (except on the Roth, for which contributions aren’t tax deductible). Free money in return for saving for your retirement is a fantastic deal — if you qualify, you should definitely try to take advantage of it. For more information on figuring your credit, which goes on line 51 of Form 1040, see IRS Form 8880.
Published on February 28th, 2007 - 4 Comments
Filed under: Retirement, Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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February 28th, 2007 at 2:19 pm
To clarify, there is a Saver’s Tax Credit that can apply toward a RIRA. Tax Deduction is for TIRA. Two separate things.
Saver’s Tax Credit: 401k, 403b, SIMPLE, SEP, govt 457 plan, TIRA, and RIRA.
-10-50% on up to $2k per person with AGI up to $52k (various levels = % credit)
IRA Tax Deduction: SEP IRA, SIMPLE IRA, qualified plan, and TIRA (RIRA not eligible)
TIRA = Traditional IRA
RIRA = Roth IRA
February 28th, 2007 at 10:36 pm
Don’t forget to check the details. i got excited about this a few weeks ago until i checked out some of the details. i believe you can not be claimed as a dependent on someone else’s return and you cant be a full time student, or something like that.
February 28th, 2007 at 10:43 pm
Here it is:
You cannot take this credit if either of the following applies:
- The amount on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36 is more than $25,000 ($37,500
if head of household; $50,000 if married filing jointly).
- The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1989, (b) is
claimed as a dependent on someone else’s 2006 tax return, or (c) was a student (see instructions).
December 14th, 2007 at 6:55 am
How would a person who earns $25,000 or less manage to put aside $2,000 and still be able to eat? It’s all very nice to get some sort of tax kickback, but you still have to put food on the table before April rolls around.