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What is the Retirement Savings Contribution Credit?
Tip It!Did you know that you may be able to get an income tax credit simply for contributing to an employer-sponsored retirement plan, or to an IRA? This is over and above the tax deduction that you may get for making such contributions. Too good to be true? I think not.
This (potentially) valuable tax credit is known as the “Retirement Savings Contribution Credit,” and it’s available to anyone who meets the income requirements and makes a qualifying retirement contribution.
For tax year 2009, you can claim this credit if you AGI is no more than:
- $55,500 (married filing jointly),
- $41,625 (head of household), or
- $27,750 (single, married filing separately, or qualifying widow[er])
The credit ranges from 10% to 50% of your contribution amount, and the maximum contribution on which the credit is calculated is $2000. In other words, you can get a credit of up to $1000. The actual rate can be determined by completing IRS Form 8880.
Eligible retirement plans/accounts include a traditional or Roth IRA, or elective deferrals to a 401(k), 403(b), 457(b), SIMPLE IRA, or a salary reduction SEP-IRA. Contribution to a 501(c)(18) plan are also eligible.
And guess what? It’s still not too late to take advantage of this tax credit for 2009. Even if you haven’t made any retirement contributions, you can still fund a traditional or Roth IRA up through the day your taxes are due. So what are you waiting for? Get cracking!
See Chapter 5 of IRS Publication 590 for complete details.
Published on January 13th, 2010 - 10 Comments
Filed under: Retirement, Saving & Investing, 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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January 13th, 2010 at 9:05 am
I actually got really excited about this. I started working in July and my salary for 2009 totals around $25,000. The only problem is that if you were a student for any part of 5 months in the calendar year, you are ineligible. I thought I’d be getting a healthy bonus, but I have no such luck.
January 13th, 2010 at 11:13 am
Wow, if I only have a Roth and no 401k, can I do this is single? how do I go about it?
January 13th, 2010 at 2:30 pm
Craig, yes you can qualify if you do a RothIRA but no 401k.
January 13th, 2010 at 3:35 pm
There are still too many restrictions on the credit.
John DeFlumeri Jr
January 16th, 2010 at 1:11 pm
Like Daniel, I was also bitten by the “you can’t be a full-time student” rule. The irony is that if I had been a part time student for my final semester (which would have been a lot easier on me anyway) I would have qualified.
@Jim
I’m assuming you mean that it’s too late to make qualifying 401k contributions for tax year 2009.
January 23rd, 2010 at 4:17 am
See I dont get the ‘fulltime student for any part of 5 months rule.’ Why don’t they just say that you can’t have been a fulltime student for any part of the Tax year? For instance I took 6 credits(considered fulltime in my school) for a summer semester lasting 4 months. But those 4 are the only months i attended school for the whole 2009. Im thinking I dont qualify.Am i right?
January 27th, 2010 at 1:07 pm
I just got married in Nov 2009 and I haven’t worked since july 2009. My husband is the only one working. We have no children and currently live with my mother. My husband does have a 401k at his job which he makes monthly contributions. Is it better for us to use the 1040A or the 1040EZ? Thanks.
January 28th, 2010 at 5:12 pm
I’m going to try it! If I get audited…I have proof!
I am also a student that graduated in May 2009 and worked after, therefore my income for 2009 is low. However, I am lucky my school has 14 week semesters. The academic calendar from the school is evidence showing that all my schoolwork ended April 27th. My commencement was May 1st. So technically, I was only a student for 4 months!!!! I went to a super expensive private school in Massachusetts, so I wonder if they did the 14 week semesters on purpose for this reason. Something totally worth considering if you ever have kids and put them through college.
February 11th, 2011 at 11:17 pm
Thanks Michelle! I graduated in May as well, and I totally figured in my head that it was 5 months. Going back and counting, I realized that it is exactly 4 months!
I find it strange that this is an ass-backwards rule, and also that the credit ($69) happens to be 10% of my contributions ($691).
January 24th, 2012 at 8:23 am
straight from the irs:
Full-time student. You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either:
A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or
A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government.
You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full time.