Saver's Credit FAQs
By: AARP Education & Outreach | Source: AARP.org | November 2008
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You could be eligible for an income tax credit just because you contribute to your retirement-savings plan or IRA. These questions and answers explain how the credit works and can help you determine whether or not you are eligible.
Q. What is the Saver's Credit?
A. The Saver’s Credit is a credit against taxes you owe. You earn the credit by contributing to a qualified retirement plan (401(k), 403(b) annuity, governmental 457, SIMPLE IRA, or certain other employer plans) or an IRA. The credit can be as much as $1,000.
Q. Can I claim the Saver's Credit?
A. You can claim the credit if you meet certain rules and income limits. First, you have to be at least 18 years of age and not a full-time student. Second, no one else can claim you as a dependent. Third, you must have contributed to a qualified retirement plan or an IRA this tax year. You can claim the credit on up to $2,000 of your contributions.
The credit amount depends on your adjusted gross income and filing status. It may be available to people who earn up to $55,500 a year.
Q. I don’t owe any taxes. Do I get the Saver's Credit as a refund?
A. No. The Saver’s Credit is a "nonrefundable" tax credit. This means it can only be used to reduce the amount of federal taxes you owe. If your tax liability is reduced to zero because of other refund credits, then you will not be entitled to this credit.
Q. My husband and I both contributed to our retirement plans this year. Can we both claim the credit?
A. Yes, if your total household income is under $55,500 and neither of you is claimed as an exemption on your spouse's or anyone else's tax return, you both can claim the credit on up to $2,000 each in qualified retirement-savings contributions.
| Credit Amount for TY 2008 | Adjusted Gross Income Limits | ||
| Joint filers | Head of household | Single or married filing separately | |
| 50% of contribution | $0-$33,500 | $0-$24,750 | $0-$16,750 |
| 20% of contribution | $33,501-$36,000 | $24,751-$27,000 | $16,751-$18,000 |
| 10% of contribution | $36,001-$55,500 | $27,001-$41,625 | $18,001-$27,750 |
*The credit amount applies to the first $2,000 in contributions.
Q. I took money out of my retirement plan last year. Can I still claim the Saver's Credit?
A. Yes, but the amount you withdrew counts against how much of the credit you can claim. If you withdrew the money in the current tax year or in the two years before that, the IRS reduces your credit based on the total amount.
Q. I took out money from my Roth IRA. Does it count against the credit?
A. Yes, Roth IRA withdrawals count against the credit amount you can claim. However, if you rolled the amount into another qualified retirement plan or another IRA, then it does not count against the credit.
Q. Does a loan count against the credit?
A. No.
Q. Does the Saver's Credit affect my ability to claim any deduction or exclusion that applies to my contribution?
A. No. Claiming the Saver's Credit has no impact on your ability to deduct IRA contributions or exclude plan contributions from your gross income if you are entitled to do so.
Q. How do I claim the Saver's Credit?
A. If you use tax preparation software,use Form 1040A, Form 1040, or Form 1040NR. The credit isn’t available on Form 1040EZ. If the software has an interview process, be sure to answer questions about the Saver's Credit. The software may also refer to it as the Retirement Savings Contributions Credit or Credit for Qualified Retirement Savings Contributions.
If you prepare a paper return, fill out Form 8880: Credit for Qualified Retirement Savings Contributions. Complete the form to determine your credit rate and the amount. Then copy that amount on the line indicated on Form 1040A, 1040, or 1040NR.
If you use a paid tax preparer, tell the person that you may be eligible for the Saver's Credit. They are likely to be aware of the credit, but you should mention it.
Q. Am I eligible for free tax preparation?
A. If you earn less than $54,000, you might be eligible for free tax-preparation software. The Internal Revenue Service partners with several tax software companies to offer Free res complimentary tax-preparation and e-filing. Read Free res Frequently Asked Questions to learn more, or visit www.irs.gov and type "Free res in the Search field.
If you earn less than $42,000, the IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help. In communities across the country, certified volunteers sponsored by various organizations receive training to help prepare basic tax returns. To learn more, visit the IRS Web site.
As part of the IRS-sponsored Tax Counseling for the Elderly (TCE) Program, the AARP Foundation also offers free tax-preparation and e-filing for eligible filers. AARP Tax-Aide is a free tax-assistance service for low- and middle-income taxpayers, with special attention to those 60 and over. Learn more at www.aarp.org/taxaide.
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