Low-Income Earners: Take Advantage of the Retirement Savings Contribution Credit

Tax season is here! With the tons of tax credits available, I looked around for some that I could possibly claim and I came across the Retirement Savings Contribution Credit. Although I can’t claim it because I was a student for most of the 2009 tax year, this tax credit is great for individuals who were determined to save for retirement despite making little money during the year.

The past year has created a treacherous economy and job market. Many people find that they’ve seen a drastic reduction in income. For those who were resilient enough to continue contributing to their retirement accounts, you will be able to claim this Saver’s Credit – a way to encourage low-income earners to save for the future.

Income Limits
The Retirement Savings Contribution Credit can only be claimed if you meet these income requirements (varies with your filing status):

• $27,750 or less if single, married filing separately, or qualifying widow(er)
• $41,625 or less head of household
• $55,500 or less if married filing jointly

Eligibility
To qualify for the Retirement Savings Contributions Credit:

• you must be 18 or older
• you must not be claimed as a dependent
• your income must not exceed the income limits
• you made contributions to a retirement account
• you are not a full-time student*

*You are considered a full-time student if you were enrolled full-time in school during any part of 5 calendar months.

How Much Credit You Get
How much you receive from the Retirement Savings Contribution Credit is determined by a percentage of the amount you contributed to your retirement account. The maximum credit is $1,000 for single filers, and $2,000 for married filers.

You can receive from 10% to 50% of your retirement account contribution – the percentage is calculated based on your income. Higher incomes will get a lesser percentage while lower incomes will get more. Check IRS Form 8880 to find out how much you will get.

To claim this credit, complete IRS Form 8880 and attach it to your Form 1040, Form 1040A, or Form 1040NR.

(Photo credit: Kevin)

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