Are You Eligible for the "Saver's Credit?"

If the adjusted gross income on your federal tax return falls within certain income limits, and you contribute to a retirement savings account, you may be able to take a tax credit against the amount of federal taxes you owe. The Retirement Savings Contribution Credit, known as the "Saver's Credit," established by the Economic Growth and Tax Relief Reconciliation Act of 2001, could directly reduce your federal income tax bill.

If you're contributing to the Employee Progress-Sharing Investment (EPSI) Plan's 401(k) and/or Non-Tax Deductible account, or to an IRA, and your income falls within certain limits, you may be eligible for the Saver's Credit. Here's how it works:

• If you (or your spouse, if you are married) contribute to a retirement plan like EPSI or an IRA, you can take a percentage of the first $2,000 you contribute (or if you're filing jointly, the first $2,000 you contribute and the first $2,000 your spouse contributes) as a dollar-for-dollar credit against the taxes you owe. The amount of the credit can be as low as 10% or as high as 50% of your qualified retirement savings contributions.
• To be eligible, your adjusted gross income on your tax return for the year has to fall within certain limits: $50,000 if you are married filing jointly; $37,500 if you are a head of household with a qualifying person; or $25,000 if you are single, or married filing separately. (See the table below for the amount of the Saver's Credit applicable to various income levels and filing statuses.)

• The Saver's Credit for your tax return could be reduced if you (or your spouse, if you are married) took a taxable distribution from your EPSI Plan or an IRA during any previous tax year, in or after 2001, or will take such a distribution up to April 15, 2005. For more information, refer to IRS Publication 590, pages 67 and 68. To obtain this publication, log on to www.irs.gov  ; on the home page enter "Publication 590" in the "Search Forms and Publications For" box on the left of the screen, then click "GO."
• Claiming the Saver's Credit does not affect your ability to deduct IRA contributions from gross income.
• The amount of the Saver's Credit will not change the amount of any refundable tax credits to which you may be entitled, such as the earned income credit or the refundable amount of your child tax credit.
• The amount of your Saver's Credit in any year cannot exceed the amount of tax that you would otherwise pay in any year. If your tax liability is reduced to zero because of other nonrefundable credits, then you will not be entitled to the Saver's Credit.
• To claim the Saver's Credit, use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine the rate and amount of your credit. (Form 8880 is also available from the Internal Revenue Service Web site, www.irs.gov  .) Enter the amount of the credit on Form 1040, line 48, or Form 1040A, line 32. (You cannot use Form 1040EZ to claim this credit.)

This description contains our understanding of the generally applicable rules. It is not intended to be legal, tax, or accounting advice. As always, we recommend everyone seek and rely upon the advice of his or her own professional advisors.

Rate This
Rating: 0/0 (0 votes cast)

  Be the first to Comment