Saver's Credit - Retirement Savings Contributions Credit
Save for Retirement and Get the Saver's Credit, Too
Do you make contributions to a retirement plan? In addition to deducting the amount of your qualified contributions, you may be able to claim an additional credit for those same retirement contributions. The Saver's Credit, formerly known as the Retirement Savings Contributions Credit, was designed to help middle-income families save for the future. The Saver's Credit may allow you to reduce your income tax dollar-for-dollar by up to $1,000 ($2,000 for married filing jointly).
The exact amount of the Saver's Credit is based on how much money you contributed and what percentage of your contributions qualify. This percentage, or credit rate, of 10%, 20%, or 50%, is determined by your adjusted gross income and your filing status. The credit is non-refundable, so it will reduce the taxes you may owe, but you will not see it in your tax refund. The maximum contribution used to calculate the amount of the Saver's Credit is $2,000 per person (so $4,000 if filing jointly).
When you prepare your tax return on efile.com, the online tax software will calculate the exact amount of your credit for you.
What Retirement Plans Qualify for the Saver's Credit?
403(b) annuity (including voluntary after-tax contributions)
457 (Governmental) plan
SIMPLE 401(k) plan
Do You Qualify for the Saver's Credit?
You must be at least 18 years old and not claimed as a dependent on someone else's tax return.
You cannot be a full-time student, or have been one for 5 or more months out of the year.
Your income for 2012 must not be more than $28,750 if single, $43,125 if filing as head of household, or $57,500 if married filing jointly.
When calculating the credit, you must deduct from the contributions you have made the amount of any retirement plan or annuity distributions you received in the current tax year and in the previous two tax years. Also note that foreign income cannot be included in your adjusted gross income for the purposes of calculating this credit.
Other Tax Benefits for Retirement Contributions
Take the Deduction for IRA Contributions
Even if you get the Saver's Credit, you can still make deductions on your tax return for qualified retirement contributions. The deduction for IRA contributions is an above-the-line deduction, which means that you do not have to itemize deductions to claim it. You can generally deduct the full amount of your qualified contributions, up to your contribution limits for the year.
Find out the current limits on pension plan contributions and benefits.
Contribute to a Roth IRA
Whether or not you qualify for the Saver's Credit, you might consider making your contributions to a Roth IRA. You can also rollover your Traditional 401(k) or Govermental 457(b) plan into a Roth account.
Contributions to a Roth IRA are taxable, but you can count your contributions toward the Saver's Credit. The biggest benefit of a Roth IRA is the fact that any capital gains it earns will be tax-free, and your post-retirement distributions will generally be nontaxable.
In 2012, you can contribute to a Roth IRA if your modified adjusted gross income is less than $125,000 ($183,000 if married filing jointly). However, if your modified AGI is between $110,000 and $125,000 ($173,000 and $183,000 if married filing jointly), your maximum contribution to a Roth will be phased out (reduced).
See the 2012 pension plan contribution limits.
Learn more about the Saver's Credit from the informational pamphlet Publication 4703 - Retirement Savings Contributions Credit.
Learn more about the tax benefits of Traditional and Roth IRAs in Publication 590 - Individual Retirement Arrangements.
See what other tax credits and tax deductions you may qualify for.
Avoid surprises! Use the FREE 2012 Tax Calculator and Tax Estimator