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  3. IRS Plugs Benefit Of Saver's Credit

IRS Plugs Benefit Of Saver's Credit

by Mike Godfrey,, Washington

17 December 2012

The United States Internal Revenue Service (IRS) has recommended that low- and moderate-income workers should plan now to save for retirement and earn the saver’s credit in 2012 and the years ahead.

The saver’s credit, also known as the retirement savings contributions credit, helps offset part of the first USD2,000 workers voluntarily contribute to their individual retirement arrangements (IRAs), or to 401(k) defined contribution plans and similar workplace retirement programs.

The IRS pointed out that eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2012 tax return. People have until April 15, 2013, to set up a new IRA or add money to an existing IRA, and still get credit for 2012. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace programs.

Employees who are unable to set aside money for this year, it added, may want to schedule their 2013 contributions soon so their employer can begin withholding them in January.

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.

The saver’s credit can be claimed by married couples filing jointly with incomes up to USD57,500 in 2012 or USD59,000 in 2013; heads of household with incomes up to USD43,125 in 2012 or USD44,250 in 2013; and married individuals filing separately and singles with incomes up to USD28,750 in 2012 or USD29,500 in 2013.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. However, though the maximum saver’s credit is USD2,000 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.

In tax-year 2010, the most recent year for which complete figures are available, saver’s credits totaling just over USD1bn were claimed on more than 6.1m individual income tax returns. Saver’s credits claimed on these returns averaged USD204 for joint filers, USD165 for heads of household and USD122 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, and, normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

TAGS: individuals | tax | retirement | tax credits | Internal Revenue Service (IRS) | tax authority | United States | individual income tax

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