Saver's Credit for 401(k) Plan Contributions
You may be eligible for a tax credit called the “Saver’s Credit” if you make eligible contributions to your company-sponsored retirement plan or IRA. Ask your tax professional if you qualify. The credit is generally a portion of your contributions and favors low-income individuals.
Income Limits
The Saver’s Credit applies to individuals with a filing status and income of:
- Single, married filing separately, or qualifying widow, with income up to $30,750
- Head of Household with income up to $46,125
- Married filing jointly with income up to $61,500
Eligibility Requirements
To be eligible for the credit you must have been born before January 2, 1993, you cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on another person’s return.
Credit Amount
If you make eligible contributions to a qualified IRA, 401(k), and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
Distributions
To determine the amount of credit, you generally must subtract the amount of distributions you have received from your retirement plan from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.
Other Tax Benefits
The Saver’s Credit can be claimed in addition to other tax benefits that may result from the retirement contributions.
Forms
You can claim the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services.
For more information, visit the IRS website or contact your tax professional.
