What Is IRS Form 8880?
The IRS has something good up its sleeve, and to claim it you need to fill out a special form at tax time. Form 8880 can provide you with what is known as a "saver's credit," which is based on the amount of money--up to $2,000--you may have in a Roth IRA or other retirement savings account.
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Tax Credit for Retirement Savings
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If you contribute part of your salary to a retirement account, such as a 401(K) or 403(B), you could be eligible to receive a special credit on your taxes. Investing in a simple IRA, Roth IRA or other retirement account can make you eligible as well. In order to claim this credit, you cannot be a full-time student, must be at least 18 years of age, and no one can claim you as a dependent on their tax return.
Reduce Your Taxes
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The retirement savings contributions credit, as it is known around the IRS offices, applies to your first $2,000 of savings. For example, say you have $5,000 in a Roth IRA, which is the current legal limit--unless you're more than 50 years of age. Form 8880 allows you to claim $1,000 of that amount as a credit on your taxes. This means $1,000 is deducted from your taxable income (as entered on Form 1040), so you pay lower taxes. This amount is calculated based on the full 50 percent credit.
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Find out if you Qualify
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Your adjusted gross income (AIG), along with your filing status--single, married or head of household--determine whether you can claim the saver's credit on your income tax. If you are a married couple filing jointly, your AIG must be $55,500 or less in order for you to claim this credit. If you are single, you must have an AIG of $27,750 or lower. If you are filing as head of household, your AIG cannot exceed $41,625.
History of Form 8880
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The IRS created the Credit for Qualified Savings Contributions form as a temporary provision in 2002. Legislation enacted in 2006 made it a permanent part of the tax code. Offered up as a way to encourage Americans to save more for retirement, the tax credit that can be claimed on Form 8880 is less well-known than some organizations would like. For example, the AARP wants to create greater awareness of this tool as part of its "mission to improve retirement security for all".
Saving for Retirement
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Whether or not you qualify for the saver's credit, putting aside money for retirement is a good idea. Funds invested in a 401(K) or a Roth IRA can still provide you with tax breaks when April 15 rolls around.
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References
Resources
- Photo Credit tax forms image by Stephen VanHorn from Fotolia.com
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Does the Tax Credit for Retirement Savings apply to Retirement programs for State or Federal government retirement plans contributions?
