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What is the Retirement Savings Contributions Credit? Can I Claim it?
Yet another case where NOT making much money actually pays off. If your income is below the follow adjusted gross income (AGI) levels for the 2011 and 2012 tax year, you may be eligible for the Retirement Savings Contribution Credit (The Saver’s Credit) on your tax return. That’s right, not a deduction, but a Credit, just for saving money. Here are the income limits to quality.
To qualify for the Saver’s Credit in 2011:
The AGI (adjusted gross income) limit for the saver’s credit is:
- $56,500 for married couples filing jointly
- $42,375 for heads of household
- $28,250 for married individuals filing separately and for singles
To quality for the Saver’s Credit in 2012:
The AGI (adjusted gross income) limit for the saver’s credit is:
- $57,500 for married couples filing jointly
- $43,125 for heads of household
- $28,750 for married individuals filing separately and for singles
- $55,500 (married filing jointly),
- $41,625 (head of household), or
- $27,750 (single, married filing separately, or qualifying widower)
Update: Here is a full-run down of the 2011 & 2012 Saver’s Credit.
Am I Eligible for the Retirement Savings Contribution Credit?
If you are below the previously mentioned income thresholds, you simply need to make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA). The amount of the saver’s credit you can get is based on the contributions you make and your credit rate (which depends on your income level).
How Much is the Credit Worth?
If you are eligible for the credit, your credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income. The lower your income is, the higher the credit rate.
Your credit rate also depends on your filing status. The maximum credit anyone could receive is 50% on a $2,000 contribution (for $1,000), but your total may vary. To figure out exactly how much you can make, use IRS Form 8880, also known as the Credit for Retirement Savings Contributions.
How Can I Claim the Retirement Savings Contribution Credit?
Once you’ve filled out Form 8880, enter the amount of the credit on Form 1040 (PDF), or on Form 1040A (PDF). You cannot use Form 1040EZ to claim this credit. If you’re looking for further information, you can also check out Chapter 5 of IRS Publication 590, Individual Retirement Arrangements (IRAs), for more information.
One last thing – if you are a full-time student for 5 months out of the calendar year, you are not eligible for the credit.
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My name is G.E. Miller and 
Ah I was there until the last line! I guess that’s why they do it, so kids graduating from college can’t take advantage of it. But on the otherhand, it would be a good incentive to teach saving. Oh well.
When I doubt, try TurboTax! That thing finds every deduction you can think of, unless you’re Donald Trump and own 500 businesses, that is.
Wow, a pretty helpful piece of advice. It would be interesting to learn how many people who make below those levels actually save any money for retirement.
Are you sure it is a credit (and not a deduction?). If I owe $500 in taxes, but am eligible for a $1,000 credit from Form 8880 doesn’t it show up as $0? I fit in the brackets and am using TurboTax but so far no credit.
How it can be a credit? I thought it is a saving plan.
to JAMES: it is a tax credit given to you at filing time. YOU open the savings plan (roth SEP, traditional IRA) and report the contributions on form 8880. Filling out 8880 will determine the amount of the credit. You get the credit back at tax filing time provided you had some tax liability or tax withheld from paycheck, etc.
to T.V.: This credit applies to ordinary income tax and alternative minimum taxes. If you have self employment tax, or one of the other taxes shown on lines 56-60 of your 2009 1040, you still have to pay that. Perhaps that (or a similar reason) is why you’re seeing zero?
to DC: a google search turns up the stat that IRS says 5.2 million tax payers took advantage, but that’s way under the number who qualify, and since it was made permamnent in 2006 there have been efforts to promote it.
It’s a nonrefundable credit, so you can only get back to $0 with it. It’s still great when you can take advantage of it, though – I got $1000 back in 2006 after starting my first full-time job at the end of 2005 and plowing all my earnings into the company’s 401k.
I love this credit. With a little tax planning you can get this credit even with a higher income. The key is that this credit is not based on gross income but AGI. My husband and I make almost 40k per year, but we get the 0.5 credit for income of 30k because we make large contributions to our 401k and HSA account. These come out before calculating the credit. I realized that if I contributed another 3k beyond what I was originally planning to add to my HSA I would get back another $600 from the savers credit and another $1100 from EIC. That’s a 56% return on my money!
So, even if you make more than the limits listed at the top of the page, you may still be able to take the credit if you have enough contributions to tax advantaged accounts.