What Is the Retirement Savings Tax Credit?
This is often an overlooked tax credit. Remember you have until April 15, 2014 to make your 2013 IRA contribution.
The Retirement Savings Tax Credit dates back to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)which introduced a new temporary tax credit for IRA contributions and elective deferrals to qualified plans made by certain lower income taxpayers. The availability of this “saver’s credit” was made permanent by the Pension Protection Act of 2006.
The credit is applied against the total of regular income tax and the alternative minimum tax and is allowed in addition to any other deduction or exclusion that would otherwise apply to the contribution/elective deferral.
Calculating the Credit
The credit is determined by multiplying “qualified retirement savings contributions” up to $2,000 times the “applicable percentage,” which is determined by the taxpayer’s adjusted gross income (AGI):
Adjusted Gross Income (2014) *
Married, filing jointly Single Applicable Percentage
More than Not over More than Not over
$ 0 $36,000 $ 0 $18,000 50%
$36,000 $39,000 $18,000 $19,500 20%
$39,000 $60,000 $19,500 $30,000 10%
$60,000 $30,000 0%
* As adjusted for inflation
“Qualified retirement savings contributions” are equal to the total of IRA contributions and elective deferrals to a 401(k), 403(b), 457 or SIMPLE plan, a SAR-SEP and voluntary employee contributions to deemed IRAs for the tax year, reduced by distributions from such plans that are included in income (or not rolled over in the case of Roth IRAs).
A single taxpayer, who does not participate in an employer-provided retirement plan and has $18,000 in adjusted gross income, contributes $2,000 to a regular IRA in 2013. In addition to deducting the $2,000 IRA contribution, this taxpayer can also claim a $400 ($2,000 x 20%) retirement tax credit for 2013.