Brendan Willmann, CPA, EA, CFP®
Asheville: 828-348-8698
Cincinnati: 513-549-2736

Retirement Saver’s Credit for Retirees

The retirement saver’s credit may be a well-intentioned incentive to encourage millions to to put money aside for retirement.  In practice however, I’ve only seen the credit claimed by semi-retired individuals who supplement their retirement income with part-time employment.  (The credit would be popular with students but unfortunately full-time students are specifically excluded.)

The credit is relatively unknown as a result of these strict eligibility restrictions but it can be significant to those who qualify, offering up to $2,000 of savings for joint filers.  To be clear, this credit serves to reduce or eliminate tax liability, not merely reduce income subject to tax.  For that reason all eligible taxpayers should familiarize themselves with the potential opportunity.

Retirees with relatively modest part-time income will likely meet the income limitations published annually by the IRS.  Eligible savers who contribute up to $2,000 to an eligible retirement plan may qualify for a credit of 10-50% of that contribution ($200-$1,000).  Joint filers can both claim a maximum of $1,000 for a total credit of $2,000.

The one page form (8880) and single page of accompanying instructions are fairly straight-forward for interested filers.  In addition to the income limitations, be aware of the obscure yet far-reaching rules pertaining to retirement plan distributions.  For 2012, the IRS will generally require that retirement plan distributions after 2009 through the tax filing deadline (including extensions) in 2013 must be subtracted from the amount saved in 2012.  If this may be applicable, please consult the instructions for the specific criteria.  Interestingly, conversions to Roth IRAs are not treated as distributions for this calculation, preserving a host of more complex financial planning opportunities.

Qualifying for the retirement saver’s credit usually requires careful, advance planning.  Proper planning can ensure coordination of employment income, Social Security benefits and retirement income planning to ensure maximum tax savings.



The articles presented on this blog are general in nature and should not be assumed to be applicable to your situation. In addition, tax law changes daily and the articles on this blog are not updated to reflect these changes. Anyone receiving any part of the information on this blog should not rely on or act or refrain from acting on the basis of any matter or information contained in this blog without seeking appropriate tax, legal or other professional advice. The transmission and receipt of information contained on this blog does not form or constitute a client relationship. Nothing in this blog constitutes legal advice. Opinions rendered by tax professionals are not authority.  You agree to hold Brendan Willmann, EA, forever harmless from any liability for your use or failure to use the information, advice, referrals, or suggestions provided by this blog at any time. 


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