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Tax Credit for Retirement SavingsPosted Friday, February 24, 2012, at 1:34 PM
There is a credit for qualified retirement savings contributions to an employer-sponsored retirement plan or to an individual retirement program. This credit can be claimed in addition to any IRA deduction claimed on your form 1040. As with any credit, you must meet certain qualifications in order to take the credit. The credit is taken using form 8880.
Here are six tips from the IRS on the retirement savings tax credit:
1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:
2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person's return.
3. 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 ($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.
4. Distributions When figuring this credit, you generally must subtract distributions you received from your retirement plans from the contributions you 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.
5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
If you have specific questions about IRS tax problems, post those questions here or send an email to firstname.lastname@example.org (all communication regarding tax matters is confidential to the fullest extent of the law). To learn more about tax problems and how to resolve them, visit www.IRSSURVIVAL.com (if you do not see your specific issue listed or you cannot find an answer to your specific problem, send an email or call 573-275-9055 or 855-IRS-SURVIVAL.
IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advise in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.
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Alan is a CPA and a Certified Fraud Examiner (CFE) with the firm Begley, Young, Unterreiner & White, LLC located in Cape Girardeau. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Association of Certified Fraud Examiners. Alan obtained his MBA from Southeast Missouri State University, and is also a Certified QuickBooks ProAdvisor who provides support to clients on the use of QuickBooks. Alan's firm works with a variety of small businesses and not-for-profit organizations providing accounting and payroll services, compilations, reviews and audits, estate and tax planning and tax preparation. Alan can be reached at 334-2845 (office) and 275-9055 (cell) or you can email him at email@example.com.