| What is it? | | | | unusual "double dipping" of tax-free retirement |
| Can you believe the Internal Revenue Service | | | | earnings AND a current year tax credit, Roth |
| (IRS) allows a legal dollar-for-dollar tax credit | | | | contributions and the Saver's Credit are a very |
| "double dip"? You can reduce your income taxes | | | | good tax strategy for reducing the current year's |
| while building your retirement funds if you make | | | | tax liability and securing a stronger financial future. |
| any voluntary contributions to a retirement plan in | | | | Who is involved? |
| 2009. The Saver's Credit or IRS Form 8880, | | | | A taxpayer who has made contributions to a |
| Credit for Qualified Retirement Savings | | | | traditional or Roth IRA, elective deferral to a |
| Contributions, calculates a non-refundable tax | | | | 401(k), 403(b), governmental 457, 503(b) plans, |
| credit for those who make salary-deferred | | | | Simplified Employee Pensions (SEP), Savings |
| contributions or make voluntary contributions to a | | | | Incentive Match Plans for Employees (SIMPLE |
| traditional and/or Roth Individual Retirement | | | | IRA), or other voluntary employee contributions |
| Arrangement (IRA). This is a dollar-for-dollar | | | | to a qualified retirement plan is eligible for this |
| reduction in any outstanding tax liability. Lower | | | | credit. You qualify for the Saver's Credit if you |
| income taxpayers are incentivized to save | | | | meet the adjusted gross income criteria, |
| because the lower one's adjusted gross income | | | | voluntarily contributed money to a retirement |
| (AGI), the higher the Saver's Credit; ranging from | | | | plan, are not a full-time student (5 calendar |
| 50% down to 0% of the voluntary contribution. | | | | months), are 18 years or older, and cannot be |
| The maximum tax credit is the lesser of either | | | | claimed as a dependent by another taxpayer. |
| $1,000 ($2,000 for couples) or the final tax liability. | | | | Mandatory contributions to retirement, pension, or |
| When determining the Saver's Credit, refundable | | | | social security are not eligible for this credit. |
| credits like Earned Income Credit, the Additional | | | | Adjusted Gross Income cutoffs in 2009 are |
| Child Tax Credit, or the Adoption Credit are NOT | | | | $27,751 for those filing single, married filing |
| taken into consideration. Similarly, excess | | | | separately or qualified widows; $41,626 for Head |
| contributions must be removed ("return of | | | | of Household, and $55,501 for married filing jointly. |
| excess contribution") before the tax return due | | | | Special Considerations? |
| date; they are not eligible for the credit. To claim | | | | IRS Form 8880 Line 4 pertains to you and, if you |
| the Saver's Credit, complete IRS Form 8880, | | | | are married filing jointly, your spouse, for any |
| Credit for Qualified Retirement Savings | | | | distribution of retirement funds after 2005 (for |
| Contributions, and attach it to your IRS Form | | | | the 2008 tax year). There is a "testing" (or |
| 1040 or 1040A. The form is one page with | | | | qualifying) period of two years preceding the year |
| separate entries for a taxpayer and their spouse. | | | | for which the Saver's Credit is claimed, or January |
| Strategy and recommendations? | | | | 1 to April 15 of the year following the year for |
| Since this tax credit is non-refundable, it has little | | | | which the credit is claimed. Any distributions from |
| financial value for taxpayers with little or no tax | | | | an individual's retirement plan during this period |
| liability. However, if you do owe taxes, you should | | | | may reduce or disqualify the allowable Saver's |
| consider making contributions to a Roth IRA even | | | | Credit. For example, distributions from a plan used |
| after December 31, up to April 15. Your | | | | to claim a Saver's Credit in 2009 that occur during |
| contributions will benefit from tax-free growth. | | | | tax years 2008 and 2007, and from January 1, |
| You won't have to include any Roth distributions in | | | | 2008, to April 15, 2009, could affect the eligibility |
| your taxable income when you retire because it is | | | | to claim the Saver's Credit. |
| funded with previously taxed dollars. Besides the | | | | |