Planning will lessen your income taxes

Eligible workers still have until April 17 to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2011. 

The saver’s credit can be claimed by:
• Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012.
• Heads of household with incomes up to $42,375 in 2011 or $43,125 in 2012.
• Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.

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 2009, the most recent year for which complete figures are available, saver’s credits totaling just more than $1 billion were claimed on just over 6.25 million individual tax returns. Saver’s credits claimed on those returns averaged $202 for joint filers, $159 for heads of household and $121 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 still may qualify for the saver’s credit.
Other special rules that apply to the saver’s credit include:

• Eligible taxpayers must be at least 18 years of age.
• Taxpayers cannot be claimed as a dependent on someone else’s return.
• A student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a student.

Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2011, that rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making that computation.

For additional information, please visit www.irs.gov.


Meg Chevalier is a senior tax specialist in the Providence office of the Internal Revenue Service. To contact or ask her a question, e-mail miguelina.y.chevalier@irs.gov.