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The Saver’s Credit for Retirement

For many low- and moderate-income workers it can be hard to save for what seems like an elusive retirement. Many feel like they might work long after retirement age because saving just seems impossible. The IRS has a special tax credit that can help offset the cost of setting up a retirement saving plan.

This tax credit, known as the retirement saving contributions credit or the saver’s credit, helps offset part of the first $2,000 dollars that workers voluntarily contribute to an IRA or 401(k) plan. This credit is only for eligible workers that set up a new retirement account or add to an existing account before April 15, 2013. To find out what your filing status is for this tax credit see Form 8880 for instructions.

So what qualifies you for this tax credit and who can claim this credit? Several groups of workers that can qualify for the credit, including:

  • Married couples that file jointly with incomes up to $57,500 in 2012 or $59,000 in 2013
  • Heads of households with incomes up to $43,125 in 2012 or $44,250 in 2013
  • Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013

Other rules that apply to the credit are:

  • You must be an eligible taxpayer 18 years old and older.
  • You cannot be claimed as a dependent on anyone else’s tax return.
  • You cannot not be a student, which is someone enrolled full-time during any part of 5 calendar months during the year.

Like any other tax credit this can increase a taxpayer’s refund or reduce the amount of taxes owed. Even though the maximum tax credit is $1000 for individuals and $2000 for married couples, the IRS wants to caution taxpayers. This tax credit is usually much lower because of other deductions and credit and for some taxpayers it may even be nothing. This should not discourage workers from trying to get the credit. Even a little can help a lot.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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