You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, says the IRS.
The Retirement Savings Contributions Credit applies to individuals with incomes up to $25,000 ($37,500 for a head of household) and married couples, filing jointly, with incomes up to $50,000. You must also be at least age 18 (born before January 2, 1987), not a full-time student, and not claimed as a dependent on another person’s return.
The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income, as shown in this chart:
| Credit Rate |
Income for Married, Joint |
Income for Head of Household |
Income for Others |
| 50% |
up to $30,000 |
up to $22,500 |
up to $15,000 |
| 20% |
$30,001–32,500 |
$22,501–24,375 |
$15,001–16,250 |
| 10% |
$32,501–50,000 |
$24,376–37,500 |
$16,251–25,000 |
When figuring this credit, you must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.
Form 8880, “Credit for Qualified Retirement Savings Contributions,” is used to figure the amount of the credit, which is then reported on line 50 of Form 1040, or Form 1040A, line 32. For your 2004 tax return, you would first subtract distributions received from Jan. 1, 2002, through April 15, 2008, from your total 2004 retirement contributions. Then you would multiply the result (but not more than $2,000) by the credit rate that applies to your filing status and income level. The maximum credit amount allowed for 2004 is $1,000, or up to $2,000 if married filing jointly and each spouse made contributions.
The subtraction rule does not apply to distributions which are rolled over into another plan or to withdrawals of excess contributions.
The Retirement Savings Contributions Credit is in addition to whatever other tax benefits may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan.
|
Form 8880 is used to figure the amount, if any, of your retirement savings contributions credit. This credit may be claimed if the taxpayer, or spouse if filing jointly, made:
- Contributions to a traditional or Roth IRA;
- Elective deferrals to a 401(k), 403(b), governmental 457, SEP, or SIMPLE plan
- Voluntary employee contributions to a qualified retirement plan; or
- Contributions to a 501(c) (18)(d) plan.
|
|
Distributions from traditional or Roth IRAs, 401(k), 403 (b), SIMPLE Plans, SEPs, government plans and other qualified retirement plans. Do not include any distributions not taxed as a result of a rollover or a rollover to a Roth IRA.
|
|
If you are self-employed or contributed to an IRA, you will find a place to enter these in the Retirement tab further in the interview process. If these contributions were withheld from your paycheck by your employer, these will be entered when you enter your wage information on the Employment tab, W-2 sub-tab.
|
|
If you are eligible for the Qualified Retirement Savings Contributions Credit, the IRS requires you to enter prior year distributions.
The Retirement Savings Contributions Credit applies to individuals with incomes up to $25,000 ($37,500 for head of household), and married couples with incomes up to $50,000. You must also be at least 18 years of age, not a full-time student, and not claimed as a dependent on another person's return.
When figuring this credit, the amount of distributions you have received from your retirement plan(s) must be subtracted from the contributions you have made.
If you know that you are not eligible for the credit, you do not need to enter your prior year retirement information. |
|
