The IRS is reminding preparers and their clients with low-to-moderate income that they can take steps now to save for retirement and earn a special tax credit in 2014 and beyond with the Saver’s Credit.
The credit helps offset part of the first $2,000 a worker must contribute to IRAs, 401(k)s and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to other tax savings that apply.
In tax year 2012, Saver’s Credits totaling $1.2 billion were claimed on more than 6.9 million individual income tax returns. Saver’s Credits claimed on these returns averaged $215 for joint filers, $165 for heads of household and $127 for single filers.
The credit supplements other tax benefits available to those putting money aside for retirement. Eligible taxpayers must be at least 18 and not claimed as a dependent on someone else’s return. A person enrolled as a full-time student during any part of five calendar months during the year is considered a “student” and cannot take the credit.
Eligible workers still have time to make qualifying retirement contributions and get the credit on their 2014 tax return: Taxpayers have until April 15 to set up a new IRA or add money to an existing IRA for 2014.
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), government 457 or the Thrift Savings Plan for federal employees.
The credit can be claimed by:
- Couples filing MFJ with incomes up to $60,000 in 2014 or $61,000 in 2015;
- Heads of household with incomes up to $45,000 in 2014 or $45,750 in 2015; and,
- Married individuals filing separately and singles with incomes up to $30,000 in 2014 or $30,500 in 2015.
Though the maximum Saver’s Credit is $1,000 ($2,000 for married couples), the IRS cautioned that the credit is often much less and may be zero for some taxpayers. Factors include the taxpayer’s AGI, tax liability and amount contributed to qualifying retirement programs.
Use Form 8880 to claim the credit. Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2014, this rule applies to distributions received after 2011 and before the due date, including extensions, of the 2014 return. Form 8880 and its instructions have details.
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