Let's talk retirement Q&A

Q. I understand the importance of beginning my retirement saving as early as possible, but it’s difficult when I’m just starting out. I’ve heard I could get part of my retirement plan contributions back by claiming the “saver’s credit” on my federal income tax return. Could you tell me more about this?

A. When contributing to an individual retirement account (IRA) or employer-sponsored retirement plan, investors under a certain income level can benefit from a saver’s credit of up to $1,000 for single filers and $2,000 for married couples filing jointly. The amount of the credit reduces your tax liability by the same dollar amount.

The amount of the credit is 50%, 20% or 10% of up to $2,000 ($4,000 for married couples filing jointly) in contributions, depending on your adjusted gross income. The lower your income, the larger the percentage of the contribution you can take as a credit. To be eligible for the saver’s credit, you must be 18 or older, not a full-time student and not claimed as a dependent on someone else’s tax return.

Rollover contributions consisting of retirement funds that you moved from another retirement plan or IRA don’t qualify toward the credit. And any taxable distributions you received from your retirement plan or IRA during a defined “testing period”* may reduce your eligible contributions.

You’ll have to fill out Form 8880 (Credit for Qualified Retirement Savings Contributions) and include it with your federal income tax return to receive the credit.

* Generally, the “testing period” consists of (i) the two years preceding the year for which you are claiming the saver’s credit, (ii) the year for which you’re claiming the credit and (iii) the period after that year up to the due date (including extensions) for the tax return for that year.