Issue Number: IR-2008-134 December 1,
2008
Plan Now to Get Full Benefit of
Saver’s Credit; Tax Break Helps
Low- and Moderate-Income Workers Save for Retirement
WASHINGTON, December 1, 2008 — Low- and moderate-income workers can
take steps now to save for retirement and earn a special tax credit in 2008
and the years ahead, according to the
Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers
voluntarily contribute to Individual Retirement Arrangements (IRAs) and to
401(k) plans and similar workplace retirement 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 2008 tax return. People
have until April 15, 2009, to set up a new IRA or add money to an existing
IRA and still get credit for 2008. However, elective deferrals 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, and the
Thrift Savings Plan
for federal employees. Employees who are unable to set aside money for this
year may want to schedule their 2009 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 $53,000 in 2008 or
$55,500 in 2009;
-
Heads of Household with incomes up to $39,750 in 2008 or $41,625 in
2009; and
- Married individuals filing separately and singles with incomes up to
$26,500 in 2008 or $27,750 in 2009.
Like other tax credits,
the saver’s credit can increase a taxpayer’s refund or reduce the tax owed.
Though the maximum saver’s credit is $1,000 ($2,000 for married couples),
the IRS cautioned that it is often much less and, due in part to the impact
of other deductions and credits, may, in fact, be zero for some taxpayers.
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 on figuring the credit correctly.
In tax-year 2006, the most recent year for which complete figures are
available, saver’s credits totaling almost $900 million were claimed on
nearly 5.2 million individual
income tax returns. Saver’s credits claimed on these returns averaged
$213 for joint filers, $149 for heads of household and $128 for single
filers.
The saver’s credit supplements other tax benefits available to people who
set money aside for retirement. For example, most workers may deduct their
contributions to a
traditional IRA. Though Roth IRA contributions are not deductible,
qualifying withdrawals, usually after retirement, are tax-free. Normally,
contributions to 401(k) and similar workplace plans are not taxed until
withdrawn.
Other special rules that apply to the saver’s credit include the
following:
- 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 5 calendar months during the year is considered
a student.
- Certain retirement plan
distributions reduce the contribution amount used to figure the
credit. For 2008, this rule applies to distributions received after 2005
and before the due date (including extensions) of the 2008 return. Form
8880 and its instructions have details on making this computation.
Begun in 2002 as a temporary provision, the saver’s credit was made a
permanent part of the tax code in legislation enacted in 2006. To help
preserve the value of the credit, income limits are now adjusted annually to
keep pace with inflation. More information about the credit is on
IRS.gov.
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