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Tax Credit for Retirement Savings Contributions

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.

Posted by on February 28, 2007.

Categories: Retirement, Taxes

4 Responses

  1. 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

    by Anonymous on Feb 28, 2007 at 2:19 pm

  2. 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.

    by Anonymous on Feb 28, 2007 at 10:36 pm

  3. 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).

    by Anonymous on Feb 28, 2007 at 10:43 pm

  4. 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.

    by Anonymous on Dec 14, 2007 at 6:55 am

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Hello and welcome. I’m “nickel”, and I’m the guy who runs this place. I’m a thirty-something family man with a loving wife and four wonderful kids. I’ve been sharing my thoughts on various topics related to money and finance here on FiveCentNickel since May 1, 2005. While my wife and I have always been pretty […]more →