Retirement Savings Contribution Credit
Retirement Savings Contribution Credit – FAQ’s
Who is Eligible to Claim the Retirement Savings Contribution Credit?
The credit may be claimed by taxpayers who:
• are age 18 or older,
• are not full-time students,
• are not claimed as a dependent on someone else’s return: and
• have adjusted gross income in 2006 no higher than these amounts:
$50,000 if married filing jointly
$37,500 if filing as head of household
$25,000 if filing single or married filing separately
What Retirement Contributions Qualify for the Retirement Savings Contribution Credit?
Contributions workers elect to make through salary reduction to a variety of employer-administered retirement plans are eligible for the credit, as are contributions to both traditional and Roth Individual Retirement Accounts (IRAs). Salary reduction contributions made to the following types of plans are eligible:
• a 401(k) plan, including a SIMPLE 401(k)
• a section 403(b) annuity
• an eligible deferred compensation plan of a state or local government (a “governmental 457 plan”)
• a SIMPLE IRA plan
•a salary reduction SEP (Simplified Employee Pension)
Individuals entitled to deduct IRA contributions may still do so and also claim the Retirement Savings Contribution Credit. Voluntary after-tax contributions to a qualified retirement plan or 403(b) annuity also qualify for the Retirement Savings Contribution Credit.
How is the Amount of the Retirement Savings Contribution Credit Figured?
The credit can range from 10 percent to 50 percent of the worker’s contribution to retirement, based upon the worker’s adjusted gross income for the tax year. In the example of Randy and Meg above, their taxable income of $25,000 as married joint filers qualifies them for a credit worth 50 percent of their $1,000 contribution.
How do Workers Claim the Retirement Savings Contribution Credit?
Workers must complete the IRS Form 8880, “Credit for Qualified Retirement Savings Contributions,” enter the amount of the credit on Form 1040 or 1040A, and attach Form 8880 to their tax return. Form 8880 may be downloaded from the IRS website at: www.irs.gov/formspubs. For additional information, see IRS Announcement 2001-106, pg. 416, “Retirement Savings Contribution Credit for Contributions by Individuals to Employer Retirement Plans and IRAs” at www.irs.gov/pub/irs-irbs/irb01-44.pdf
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