Tax season is already upon us, but certain taxpayers can still couple retirement planning and income tax planning for 2011. The Retirement Saver’s Credit allows low- and moderate-income taxpayers to make qualifying retirement contributions on or before April 17, 2012, and claim a credit on their 2011 return.
Employers should take note of the credit also because their employees may qualify for the credit with contributions to their employer retirement plans as well.
The maximum non-refundable credit of $1,000 ($2,000 if married filing jointly) offsets regular tax and Alternative Minimum Tax (AMT). Qualifying contributions include those made to traditional and Roth IRAs, 401(k) and similar employer plans. The credit is available in addition to other tax savings that apply. IRA contributions can be made to new or existing accounts on or before April 17, 2012.
Elective deferrals to employer plans [e.g. 401(k), 403(b), and government 457 plans] must have been made by the end of 2011. However, employees can still realize benefits for 2012 by setting up 2012 contributions soon so employers can begin withholding amounts throughout 2012.
Income limitations apply, and the credit is eliminated once adjusted gross income (AGI) exceeds the following amounts. Special rules apply if you have foreign income or deductions.
IRS Form 8880 must be used to claim the credit, which is based on many factors including filing status, adjusted gross income, tax liability, and the amount and source of funds contributed. The income limitations above and other rules may reduce or eliminate the credit for some taxpayers.
Please consult Form 8880 and its instructions, or consult with your tax advisor for more information and to see if you qualify.
Ryan Laughlin is a senior manager at Wipfli LLP.
