What is the saver's
The saver's credit is a tax credit, based upon contributions to an IRA or 401(k) plan at work, that is supposed to encourage relatively low-income individuals to fund retirement savings. The maximum credit is $1,000, based on a $2,000 contribution to the IRA or 401(k) plan; on joint returns this maximum credit increases to $2,000. Contributions to all kinds of IRAs (e.g. ROTH IRA and traditional IRAs) qualify for the savers credit.
Generally, the only persons who can claim this credit are lower income adults who are not claiming certain other specific credits (e.g. hope education credit, child credit or child care credit); the saver's credit can only be claimed once you have used up all of these other specific credits. If these other credits reduce your tax liability to zero, you won't qualify for a savers credit. However, the earned income tax credit has no effect on the saver's credit; therefore, you can get both a saver's credit and a full earned income tax credit.
Originally, the savers credit was supposed to expire at the end of 2005; however, subsequent legislation made the credit permanent.
To get this credit, individuals must meet all four of these requirements:
The saver's credit
is a percentage of the contributions to both IRAs and employer 401(k) type
retirement plans. As income rises, the percentage goes down starting
from 50%. The following data is for 2012 inocme tax returns:
If you or your spouse (if you are married) receive
any distributions from IRAs or retirement plans during a time period
that starts with January 1st of the previous year and goes through the due date
(including extensions) of your tax return, you will probably see a reduction in your
saver's credit. Tax-free rollovers from one plan to another plan, won't
affect your saver's credit.
The following example helps explain how this reduction works.
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