Qualifying for the Retirement Savers' Tax Credit
Q: I retired from my career a few years ago but still earn a little money working part-time at a golf course. Can I qualify for the retirement savers’ tax credit?
A: You may qualify for this frequently overlooked tax credit. However, the type of income used to determine eligibility for the savers’ credit is different from the income used to calculate whether you can contribute to an IRA. You may contribute to an IRA if you have earned income from a job or self-employment (up to the amount you earned for the year, with a $5,500 maximum for 2016, or $6,500 if 50 or older). But eligibility for the retirement savers’ tax credit is based on your adjusted gross income plus how much you contributed to a retirement savings plan.
Even if you earned only a small amount from a job, your AGI could still disqualify you if you earned taxable income in other ways — say, if you’ve taken withdrawals from tax-deferred retirement savings, have a taxable pension, or received taxable Social Security benefits or dividends or capital gains from investments. See the first page of Form 1040 for a list of items that are included and subtracted in the AGI calculations. (Your AGI is the number at the bottom of page 1 of Form 1040.)
The size of the savers’ credit depends not only on your adjusted gross income but also the amount of money you contributed to a retirement plan for the year; for 2016, if you’re married filing jointly, up to $4,000 in contributions can count toward the credit, or $2,000 if you’re filing as single or head of household. If your adjusted gross income is $40,001 to $61,500 if married filing jointly — $30,001 to $46,125 if filing as head of household, or $20,001 to $30,750 for single filers — the credit is worth 10 percent of your contribution. If your AGI is $37,001 to $40,000 if married filing jointly — $27,751 to $30,000 for heads of household, or $18,501 to $20,000 for single filers — the credit is worth 20 percent of your contribution. The credit is worth 50 percent of your contribution if your AGI falls below those levels.
For more information and help calculating the size of the credit, see the worksheet on Form 8880, which you must submit when filing your taxes to claim the credit, at www.irs.gov. And note that the income cut-offs are slightly higher for 2017 contributions; see the IRS’ Retirement Savings Contributions Credit fact sheet.
Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit Kiplinger.com.
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