MinuteMan NewsCenter writes: Low- and moderate-income workers can take steps now to save for
retirement and earn a special tax credit in 2013 and the years ahead,
according to the Internal Revenue Service.
The saver’s credit
helps offset part of the first $2,000 workers voluntarily contribute to
IRAs and to 401(k) plans and similar workplace retirement programs. Also
known as the retirement savings contributions credit, the saver’s
credit is available in addition to any other tax savings that apply.
Eligible
workers still have time to make qualifying retirement contributions and
get the saver’s credit on their 2013 tax return. People have until
April 15, 2014, to set up a new individual retirement arrangement or add
money to an existing IRA for 2013. However, elective deferrals
(contributions) must be made by the end of the year to a 401(k) plan or
similar workplace program, such as a 403(b) plan for employees of public
schools and certain tax-exempt organizations, a governmental 457 plan
for state or local government employees, and the Thrift Savings Plan for
federal employees. Employees who are unable to set aside money for this
year may want to schedule their 2014 contributions soon so their
employer can begin withholding them in January.
The saver’s credit can be claimed by:
Married couples filing jointly with incomes up to $59,000 in 2013 or $60,000 in 2014;
Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014.
Like
other tax credits, the saver’s credit can increase a taxpayer’s refund
or reduce the tax owed. Though the maximum saver’s credit is $1,000,
$2,000 for married couples, the IRS cautioned that it is often much less
and, due in part to the impact of other deductions and credits, may, in
fact, be zero for some taxpayers.
A taxpayer’s credit amount is
based on his or her filing status, adjusted gross income, tax liability
and amount contributed to qualifying retirement programs. Form 8880 is
used to claim the saver’s credit, and its instructions have details on
figuring the credit correctly.
In tax-year 2011, the most recent
year for which complete figures are available, saver’s credits totaling
just over $1.1 billion were claimed on nearly 6.4 million individual
income tax returns. Saver’s credits claimed on these returns averaged
$215 for joint filers, $166 for heads of household and $128 for single
filers.
The saver’s credit supplements other tax benefits
available to people who set money aside for retirement. For example,
most workers may deduct their contributions to a traditional IRA. Though
Roth IRA contributions are not deductible, qualifying withdrawals,
usually after retirement, are tax-free. Normally, contributions to
401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver’s credit include the following:
Eligible taxpayers must be at least 18 years of age.
Anyone claimed as a dependent on someone else’s return cannot take the credit.
A
student cannot take the credit. A person enrolled as a full-time
student during any part of 5 calendar months during the year is
considered a student.
Certain retirement plan distributions
reduce the contribution amount used to figure the credit. For 2013, this
rule applies to distributions received after 2010 and before the due
date, including extensions, of the 2013 return. Form 8880 and its
instructions have details on making this computation.
Begun in
2002 as a temporary provision, the saver’s credit was made a permanent
part of the tax code in legislation enacted in 2006.
To help
preserve the value of the credit, income limits are now adjusted
annually to keep pace with inflation. More information about the credit
is on IRS.gov.
Friday, December 20, 2013
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