Tax planning and compliance for investors
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By Kaye A. Thomas
Updated January 31, 2011
Applies to retirement savings in 401k, IRA, other accounts.
Recent changes in the tax laws have encouraged many employers to adopt automatic enrollment arrangements for their 401k plans. One effect will be a significant increase in the number of participants with moderate income — the kind who may qualify for the retirement savings contribution credit. This credit can be worth as much as 50% of the amount you contribute to a retirement plan. You don't receive this credit automatically, though. You have to claim the credit by filing Form 8880 with your 1040 or 1040A. When claiming this credit you can't use Form 1040EZ.
This credit is available for people who contribute to IRAs, 401k accounts, or certain other types of retirement accounts, but only if they meet certain requirements. The main ones:
Income limits are lower for the maximum credit of 50%, but you can get at least some credit up to the limits mentioned above.
This credit is easy to overlook, especially if your retirement plan contribution doesn't show up on your tax return.
Even if you have a visible contribution on your tax return, such as a deduction for contributing to a traditional IRA, the IRS won't automatically grant the credit. It's your responsibility to attach Form 8880 if you want this credit.
A professional tax return preparer should know enough to ask whether you've made a retirement plan contribution in the past year and make sure you claim the credit if you're eligible. But you shouldn't assume you'll get this credit just because you use a pro (or a software program). Check to see if Form 8880 is attached to your return, and if not, find out if that's because you failed an eligibility test, or perhaps simply an oversight.
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