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IRS Pushes Tax Credits For Retirement Accounts

by Mike Godfrey, Tax-News.com, Washington

20 December 2011


The United States Internal Revenue Service (IRS) is encouraging low- and moderate-income workers to take steps to save for retirement and earn a special tax credit in 2011 and the years ahead.

The savers' credit helps offset part of the first USD2,000 workers voluntarily contribute to individual retirement accounts and plans. The IRS has pointed out that, also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

It has confirmed that eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return. People have until April 17, 2012, to set up a new individual retirement arrangement, or add money to an existing plan, and still get credit for 2011.

However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace programme, 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.

Furthermore, employees who are unable to set aside money for this year may want to schedule their 2012 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 USD56,500 in 2011 or USD57,500 in 2012; heads of household with incomes up to USD42,375 in 2011 or USD43,125 in 2012; and married individuals filing separately and single persons with incomes up to USD28,250 in 2011 or USD28,750 in 2012.

In tax year 2009, the most recent year for which complete figures are available, saver’s credits totalling just over USD1bn were claimed on just over 6.25m individual income tax returns. Savers' credits claimed on these returns averaged USD202 for joint filers, USD159 for heads of household and USD121 for single filers.

A comprehensive report in our Intelligence Report series titled "The Lowtax International Pensions Report" which has an in depth view on The Mechanics of Pensions Provision, 'High-Tax' Country Pension Regimes and 'Lowtax' Jurisdictions In Which To Locate Pensions Savings, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report14.asp
TAGS: individuals | tax | investment | pensions | employees | retirement | tax credits | Internal Revenue Service (IRS) | tax authority | United States | individual income tax

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