Hesitant in Saving for Retirement? See How The Saver’s Credit Can Help

Most people has to attend to their day-to-day expenses first before they can take care of retirement savings. Imagine if you are in the low-income to moderate-income bracket, chances are you are not making any retirement contributions at all! You would probably just rely on the Social Security pension as your only retirement option. The US government understands this situation so they gave qualified individuals a “Saver’s Credit” in order to facilitate the retirement contributions for those individuals. This credit was introduced in 2007 and has been benefiting a lot of low-income families already. The maximum credit that can be taken is $1,000 (or $2,000 for married filing joint taxpayers.)

Who Is Eligible

To be eligible for the saver’s credit, you must meet the following requirements:

• You must make contributions to retirement plans such as an individual retirement account (Traditional IRA or Roth IRA), employee retirement plans (such as 401k, 403b, 457, SEP, or SIMPLE IRA, Federal Thrift Savings plan, 501c plans, etc)
• Your  adjusted gross income is $27,750 or less for single  filers, $41,625 or less for head of household, $55,500 if married filing jointly.
• You must be at least 18 years of age and must not be a full-time student at any part of 5 calendar months during the tax year
• You must not be claimed a a dependent on someone else’s return.

How To Claim The Credit

You can determine the amount of credit by using  Form 8880.  When figuring this credit, you would need to subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

When you figured out your credit amount, you can enter the credit on your Form 1040, line 50 or Form 1040A line 32, and attach the Form 8880 on your tax return.