Take Advantage of the Retirement Savers' Tax Credit
Who qualifies for the Retirement Savers’ Tax Credit, and how much is it worth?
The Savers’ Credit is a frequently overlooked tax break that provides an extra incentive to contribute to a retirement-savings account, such as a traditional or Roth IRA, a 401(k), a 457, a 403(b) or the federal Thrift Savings Plan. In addition to any tax break you already get for contributing to a retirement plan -- say, tax-deductible IRA contributions or pretax contributions to a 401(k) or other plan -- you can also take a credit that can reduce your tax bill by up to $1,000.
SEE ALSO: Are You Saving Enough for Retirement?
To qualify for the credit on your 2012 tax return, your adjusted gross income must be $28,750 or less if you’re single, $43,125 or less if you file your tax return as head of a household, or $57,500 or less if you are married filing jointly. Also, you must be at least 18 years old, cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on someone else’s tax return.
The credit is worth 10% to 50% of up to $2,000 that you contribute to a retirement-savings plan. The lower your income, the higher the credit. If you are the top of the income limit, you can cut your tax bill by $200. At the lowest income levels, the credit is worth $1,000 ($2,000 for married couples filing jointly). The income limits will increase slightly for 2013 returns, with the credit disappearing when your income tops $29,500 if you are single, $44,250 for head of household, and $59,000 for married couples filing jointly.
To claim the credit, file Form 8880 with your tax return.
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