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If you took our advice and maxed out your 401(k) or retirement plan last year, don’t forget to cash in on the Saver’s Tax Credit. Depending on how much of your income you put toward savings last year, the credit is available for the first $2,000 contributed to your employer-sponsored retirement plan or IRA.
It could take out a nice chunk from your taxable income – up to $1,000 for single filers and up to $2,000 for married filers. (See 11 awesome tax benefits coming your way this year.)
But, according to a Transamerica Retirement Survey, just 21 per cent of workers who qualified were even aware of the credit last year.
“The Saver’s Credit reduces an eligible taxpayer’s federal income tax dollar-for-dollar, making it a meaningful incentive for low-to-middle income individuals and households to save for retirement in a 401(k) plan or IRA,” said Catherine Collinson, president of the Transamerica centre for Retirement Studies. “Unfortunately, few are aware that it’s available.” (How much should you put in your 401(k)?)
Here’s what your adjusted gross income must be to qualify.
Single filers: AGI of $28,250 in 2011.
Joint filers: AGI of $56,500 in 2011.
Head of household: AGI of $42,375 in 2011.
If you’re filing your own taxes, use Form 1040, 1040A or 1040NR, Transamerica says. For tax prep software, the credit may be listed a few different ways: the Saver’s Credit, Retirement Savings Contributions Credit or Credit for Qualified Retirement Savings Contributions.
Manual tax filers should use Form 8880, the Credit for Qualified Retirement Savings Contributions. That will help you estimate the exact credit rate, which you’ll then have to transfer over to the proper 1040, 1040A or 1040NR form.
The IRS has more information on the saver’s credit here.