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Retirement Saver's Tax Credit is a Great Benefit for Low Income Taxpayers


I just learned about the retirement saver’s tax credit. If you qualify, this tax credit is definitely worthwhile.

In a nutshell, if you fall under the income caps and contribute up to $2,000 to any retirement plan (401[k], traditional IRA, or even a Roth IRA), you may be able to take a tax credit of up to 50% of that contributed amount. (A tax credit, as opposed to a deduction, means the money comes right off of what you owe—or gets added to your refund you receive!)

Essentially, the less you earn, the bigger a credit you can claim. Here’s how the retirement saver’s tax credit works:

You can claim 50% of your retirement savings contribution, up to $2,000, if you:

  • File as single, a widow(er) or married filing separately and earned up to $15,500
  • File as head of household and earned up to $23,250
  • File as married filing jointly and earned up to $31,000

You can claim 20% of your retirement savings contribution, up to $2,000, if you:

  • File as single, a widow(er) or married filing separately and earned $15,501 to $17,000
  • File as head of household and earned $23,251 to $25,500
  • File as married filing jointly and earned $31,001 to $34,000

You can claim 10% of your retirement savings contribution, up to $2,000, if you:

  • File as single, a widow(er) or married filing separately and earned $17,001 to $26,000
  • File as head of household and earned $25,501 to $39,000
  • File as married filing jointly and earned $34,001 to $52,000

You cannot claim the retirement saver’s tax credit if you:

  • File as single, a widow(er) or married filing separately and earned $26,001 or more
  • File as head of household and earned $39,001 or more
  • File as married filing jointly and earned $52,001 or more

You’ll need IRS form 8880 to claim the retirement savers tax credit. Or, you can prepare your tax return online for free using TurboTax Federal Free Edition.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. David – does this still work if you are claimed by a parent as a dependent? I’m financially independent, but my father is claiming me for as long as he can – until my income crosses the “cannot be claimed” mark. :( I’d love to be able to get the credits for student loan interest and the money I contributed to my 401(k).

  2. Hey Irene, That’s a great question. I THINK that you can still claim this and your student loan interest even if your dad claims you as a dependent.

    In your case, the biggest difference, again, I think, is that you don’t get as much (or any) personal exemption if somebody claims you as a dependent.

    I think that’s the case—but apart from researching these articles I’m not a tax pro by any means, so if somebody knows differently please correct me.

  3. another caveat you can add to the “You cannot claim the retirement saver’s tax credit if you:” You cant be a student!

    That sucks

  4. Lois Spell says:

    I would like to know if retirement taken out with the Florida Retirement
    Services for teachers can be used with the Saver’s plan?

  5. I’ve just begun the 2008 tax process and was very surprised to learn the Retirement Saver’s Tax Credit does not apply to students! I am a graduate student (research assistant), and my status seems alternatively classified as “employee” or “student” by my university depending on the context. With my small graduate student stipend from my university, I put some amount in a Roth IRA every month.

    Can I claim “non-student” status since I earn an income from the university, in order to get the tax credit? Thank you!