What Is the Tax Saver's Credit?
The saver's credit was first started in 2002 as a temporary provision in the tax code that was intended to provide tax benefits to individuals who made contributions to a qualified retirement plan. It became a permanent credit in 2006. In contrast to deductions, tax credits can not only reduce the amount of tax you owe but also increase your refund.
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Qualifying Plans
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The saver's credit is available to anyone who made contributions to qualified plans including 401K, traditional or Roth IRAs, 457s, 501c, SEP and SIMPLE. You are able to take the credit even if you don't make a contribution for the previous year until April 15 of the current year.
Eligibility
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Eligibility for the saver's credit is dependent on your adjusted gross income, filing and status and contribution amounts made to a qualified retirement plan. Please see the special rules below for exceptions. Per the IRS Publication 590 for the 2009 tax year, the adjusted gross income must not be greater than $55,500 if you are married filing jointly, $41,625 if head of household or $27,750 if a single filer.
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Special Rules
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The saver's credit can not be claimed by anyone under 18 years of age or anyone that is a dependent on another tax payer's return. You also can't take the credit if you were a full time student during the course of the tax year. The IRS deems full time to be taking courses for five months or more of the year.
Form 8880
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When filing your tax return, you will complete your 1040 and then will need to also fill out a Form 8880 to claim the credit. You will need the total amount of qualifying contributions for the tax year to enter into lines 1 through 2. You will also need the information for any distributions you took during the tax year. The amount of the credit is calculated using a multiplier based on the amount you contributed, your adjusted gross income and filing status.
Distributions Not Allowed
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You can not claim the saver's credit for rollover distributions, a contribution made to repay a previous distribution or any money received from military retirement plans. Employee stock dividends that are reinvested are also not eligible for the credit.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
