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How the Saver’s Tax Credit Works

        Money | Taxes

Do I Qualify for the Saver's Tax Credit?

The saver's tax credit is a great way to cut down on your tax bill, but you need to ensure you qualify first. You can claim the credit on contributions to retirement accounts like 401(k)s, 403(b)s, 457 plans, Roth IRAs, traditional IRAs, Simple IRAs, and SEP IRAs. Check with your tax professional to see if others apply. Keep in mind, however, that you can't claim any contributions your employer might make to these accounts.

To claim the credit, you must be age 18 or older. You cannot be a full-time student, and you cannot be listed as anyone's dependent. You must have made your retirement contribution in the year you are filing. You must meet the income requirements as described on the previous page. These change, so be sure to check each year.

If you have made any money from retirement plan or annuity distributions during the current year as well as the past two tax years, you must deduct that money from your retirement contributions. Rollover contributions aren't eligible, either, and you can't use any foreign income when calculating your adjusted gross income (AGI).

Another positive aspect of the saver's tax credit is that you can use it in addition to the tax deduction you already get for contributing to your 401(k) or IRA. Make sure you take advantage of this double savings if you qualify.

This is the most important part -- if you do qualify, you need to file your taxes using IRS Forms 1040, 1040A, or 1040N. The 1040EZ form doesn't allow you to file for this credit. The saver's tax credit form is IRS Form 8880. Fill it out and attach it to your Form 1040. If you use tax filing software, look for the credit while preparing your taxes. For most people, the saver's tax credit saves them a few hundred dollars -- and every little bit helps [source: Brandon].