Effective for the year 2008, some taxpayers can save for retirement and earn a special tax credit. This credit, referred to as the “saver’s credit” can offset the first $2,000 contributed to the taxpayer’s IRA, 401(k) and other retirement plans.
There is a catch. The credit is only available to taxpayers which meet certain income criteria. The credit has been available as a permanent fixture since 2006 but the income amounts are indexed each year. Currently, they are:
- Singles and married filing separately with incomes up to $26,500 in 2008 ($27,750 in 2009);
- Married couples filing jointly with incomes up to $53,000 in 2008 ($55,500 in 2009); and
- Heads of Household with incomes up to $39,750 in 2008 ($41,625 in 2009).
The maximum saver’s credit is $1,000 for individuals, or $2,000 for married couples. The amount can be reduced by adjusted gross income (AGI), tax liability and amount contributed to your IRA or other qualifying retirement programs. The average credit paid in 2006 was $213 for married filing jointly, $149 for heads of household and $128 for singles.
To claim the credit, use form 8880 together with your 1040. There are some additional eligibility requirements, so be sure and read the instructions or consult with your tax professional.
Be sure and keep deadlines in mind… Eligible taxpayers have until April 15, 2009, to set up a new IRA or make a contribution to an existing IRA and have it *count* for 2008. However, contributions to deferral-type plans, like 401(k) plans, must be made by the end of the calendar year; those taxpayers have just 23 days to qualify for a 2008 credit.
