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6 Tips for Claiming the Credit for Retirement Savings

Low to moderate-income workers who are saving for retirement by using a 401(k) or an individual retirement account may be eligible to receive a very valuable tax credit that could be worth as high as $1,000 for a sole person and $2,000 for a joint-tax account for couples. Here are six tips to help you claim the saverق€™s credit on your tax return.

1. آ Make Contributions to a Retirement Account

The saverق€™s credit can be claimed on as much as $2,000 and $4,000 for married couples that you contribute into an IRA, 401(k) plan or other types of retirement accounts. You have until mid April to contribute to an IRA in order to count toward the previous tax year. Because of the fact that you have up until your tax-filing deadline, you should not give up on your deduction and credits for the previous year. You benefit greatly from the saverق€™s credit because not only are you saving for your retirement, but youق€™re also growing that money while saving on your taxes at the same time.

2. آ Adhere to Your Income Limits and Calculate Your Credit

Those individuals who have incomes as high as $30,000 in 2014 can claim the saverق€™s credit. For those that are heads of household, the income is $45,000 in 2014. Couples that are married can earn as high as $60,000 for their 2014 taxes while still claiming the saverق€™s credit. These income limits will be adjusted on an annual basis in order to keep up with inflation rates. Keep in mind that the amount of credit that youق€™ll receive will be 50%, 20% or 10% of your 401(k) or IRA contributions as high as $2,000 with the biggest credit given to savers who have the lowest adjustable gross incomes.

3. آ Be Aware That You May Not Receive Full Credit

The saverق€™s credit is worth over $1.1 billion, which was claimed for nearly 6.4 million tax returns in 2011. However, the majority of retirement savers were given minimal credit, which averaged only $128 for individuals and $215 for couples. This saverق€™s credit isnق€™t refundable, and so you canق€™t claim it if your other credits already eliminated your tax liability. You would need to make the full $2,000 contribution in order to receive the full credit, and so most people end up saving a few hundred dollars off of their tax return, and not the full amount.

4. آ Twice the Tax Breaks

You can receive the saverق€™s credit in addition to a tax deduction that you receive for contributing to an IRA or 401(k). This saverق€™s credit may also be claimed for a Roth IRA account, however in this case you will only get the credit and not the tax deduction. For instance if a married couple in which one of the spouses earns $30,000 contributes $1,000 to their IRA they will receive both the tax deduction on that money as well as the credit, giving them twice the tax break.

5. آ Figure Out If Youق€™re Ineligible

You arenق€™t able to claim the saverق€™s tax credit if youق€™re under the age of eighteen or if youق€™re currently being claimed as a dependent on another personق€™s tax return. Additionally those individuals that are currently enrolled as a full-time student will not be able to receive any retirement savings credit. You are also not able to receive rollover contributions for the saverق€™s credit, and even if youق€™re contributions are eligible they may be reduced if you have recently taken out your distributions from your retirement account.

6. آ Ensure You Have the Right Forms

You must obtain IRS Form 8880 in order to claim the saverق€™s credit. Once this is accomplished you need to attach it to either your 1040, 1040A or 1040N when filing your tax return. Make sure that you donق€™t use the 1040EZ form, and if you utilize tax-preparation software make sure that youق€™re on the lookout for it in order to ensure that you properly claim your retirement savings. If you are close to the income cutoff then you should consider calculating whether you could get the tax deduction, as well as credit by putting a smaller amount of cash in your retirement account.