Looking to boost employee participation in your retirement plans? Remind them of the retirement savings contributions credit (saver’s credit), which allows qualifying individuals to take a tax credit of up to $1,000 ($2,000 if filing jointly) for making eligible contributions to an IRA or employer-sponsored retirement plan.
Who is eligible for the credit?
- Age 18 or older;
- Not a full-time student;
- Not claimed as a dependent on another person’s return; and
- With a 2011 adjusted gross income not more than:
- $56,500 for married filing jointly ($57,500 for 2012),
- $42,375 for heads of household ($43,125 for 2012), or
- $28,250 for singles, married filing separately, or qualifying widow(er)s ($28,750 for 2012).
Eligible contributions include:
- Contributions to a traditional or Roth IRA,
- Elective deferrals (including after-tax Roth contributions, if available) to a:
- 401(k) plan (including a SIMPLE 401(k) and the federal Thrift Savings Plan),
- SIMPLE IRA plan
- 403(b) annuity
- governmental 457(b) plan
- Contributions to a §501(c)(18) plan, and
- Voluntary after-tax employee contributions to a qualified retirement plan or 403(b) annuity. For purposes of the credit, employee contributions will be voluntary as long as they aren’t required as a condition of employment.
Rollover contributions aren’t eligible for credit. Also, eligible contributions may be reduced by any recent distributions received from a retirement plan or IRA.
Amount of the credit
The amount of the credit depends on contributions made and your credit rate, which depends on income and filing status. The credit rate ranges from 10 percent to 50 percent. See IRS Form 8880 to determine the credit rate.
Example: Jill, who works at a retail store, is married and earned $30,000 in 2011. Jill’s husband was unemployed in 2011 and did not have any earnings. Jill contributed $1,000 to her IRA in 2011. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $29,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.
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