The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to individual retirement accounts (IRAs) and 401(k) or similar workplace retirement savings programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2014 tax return, the IRS said. People have until April 15, 2015, to set up a new individual retirement arrangement or add money to an existing IRA for 2014. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, or the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2015 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:
- Married couples filing jointly with incomes up to $60,000 in 2014 or $61,000 in 2015;
- Heads of Household with incomes up to $45,000 in 2014 or $45,750 in 2015; and
- Married individuals filing separately and singles with incomes up to $30,000 in 2014 or $30,500 in 2015.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details about calculating the credit correctly.
In tax year 2012, the most recent year for which complete figures are available, saver’s credits totaling $1.2 billion were claimed on more than 6.9 million individual income tax returns, the IRS reported. Saver’s credits claimed on these returns averaged $215 for joint filers, $165 for heads of household and $127 for single filers.
Other special rules that apply to the saver’s credit include:
- Eligible taxpayers must be at least 18 years of age.
- Anyone claimed as a dependent on someone else’s return cannot take the credit.
- A student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a student.
Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2014, this rule applies to distributions received after 2011 and before the due date, including extensions, of the 2014 return.