What this means is that lower-income taxpayers can have a portion of their retirement savings contributions returned to them in the form of a tax credit—a dollar-for-dollar offset of tax—of as much as 50% of the retirement savings contribution. The credit is phased out as a taxpayer’s modified AGI increases over set limits (see table below), and this credit applies only to the first $2,000 of contributions to retirement savings, even though the law allows substantially larger contributions.
If you make or would like to make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit. Here are some things you need to know about the Retirement Savings Contributions Credit:
Income Limits – For 2010, the Savers Credit applies to individuals with a filing status and income of:
- Single, Married Filing Separately, or Qualifying widow(er), with income up to $27,750
- Head of Household, with income up to $41,625
- Married Filing Jointly, with income up to $55,500
Eligibility Requirements - To be eligible for the credit in 2010, you: (1) must have been born before January 2, 1993, (2) must not have been a full-time student during the calendar year, and (3) cannot be claimed as a dependent on another person’s return.
Credit Amount - If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 (or up to $2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income. The table below includes the credit percentages for taxpayers with various income levels.