The Retirement Savings Contribution Credit
What is the Retirement Savings Contribution Credit?
This is a special tax credit from the government which is designed to give assistance for those who have a low to moderate source of income. It is a sad reality that most employees do not have sufficient means of saving for their retirement. In 2002, Congress has come up with a way to financially aide the people by alleviating at least a portion from their taxes.
In order to qualify, it is important that the applicant makes a regular contribution to the traditional IRA, Roth IRA, 401(k) compensation plan or other retirement plans. It is important to note that you can check your retirement plan contribution to your employer through the W-2 Wage and Tax Statement form. Also, if you’re going to change an employer, be sure to transfer your past retirement savings to your personal IRA account.
A person who qualifies for a Retirement Savings Contribution Credit can receive up to $1,000 of credit. The amount of Retirement Savings Contribution Credit that will be obtained will depend on your gross income and the percentage of the retirement contributions you have made.
For example, if you’re making a $1,000 contribution to your 410k compensation plan and your employer contributes the $500 in your account. If you have a Retirement Savings Contribution Credit, you’re eligible to get a $500 less in your taxes.
Who are eligible to get the Retirement Savings Contribution Credit?
- Those who have an income of up to $25,000 or lower for individuals
- Those who have an income of up to $37,500 or lower for a head of household
- For married couples filing jointly, income must be up to $50,000 or lower
- Those who are at least 18 years old and cannot be claimed as a dependent
Who are disqualified to get the Retirement Savings Contribution Credit?
- Those who are below 18 years old
- Those who are full time students
- Those who are dependents on someone else’s tax return
- Those who are born after January 1, 1989
How to File
If you would like to apply for a Retirement Savings Contributions Credit, you would need to file Form 8880 together with your income tax return. Most tax payers only choose to submit Form 1040EZ because it’s easier to fill up and complete. However, this form is not enough to qualify for a Retirement Savings Contributions Credit. Some people are not even aware that they are qualified to receive a Retirement Savings Contributions Credit and are therefore missing out on this great opportunity.
If you’re doing all you can to save on your expenses and to make your budget work, obtaining credit from your Retirement Savings Contributions will greatly help in your finances. Additionally, if you know someone who is qualified to get a Retirement Savings Contributions Credit, why not inform them of this privilege?
The form 8880 can be downloaded from the IRS website or by ordering through phone at this number: 800-TAX-FORM (800-829-3676). If you would like to learn more, you can visit the IRS official website at http://www.irs.gov/newsroom/article/0,,id=107686,00.html.
