New Credit for Retirement Plan Contributions

Home

About Us

CREDIT FOR RETIREMENT PLAN CONTRIBUTIONS

A recent tax act allows certain tax payers who contribute to a qualified retirement plan to receive a tax credit. The law includes credits for contributions to 401(k), 403(b), and 457 plans; and Traditional, SEP, SIMPLE and Roth IRAs.

The credit rate ranges from 10 to 50 percent of you contribution depending on your income level, with the maximum contribution eligible for the credit being $2,000. Thus, the maximum credit available would be $1,000, or 50% of the maximum eligible contribution of $2,000. The tax credit can be taken in addition to the deduction you receive when you contribute to a plan; however, the credit is non-refundable and cannot reduce your tax below zero, qualifying you for a tax refund.

The credit affects some lower-income taxpayers with the tax credit rate decreasing as income increases. Qualifying income levels and credit rates are as follows:

2007 Limits
Credit rate	Single, widow(er) or married separate filer income limits	Married, joint filer income limits	Head of Household filer income limits
50%	Up to $15,500	Up to $31,000	Up to $23,250
20%	$15,501 to $17,000	$31,001 to $34,000	$23,251 to $25,500
10%	$17,001 to $26,000	$34,001 to $52,000	$25,501 to $39,000

2008 Limits
Credit rate	Single, widow(er) or married separate filer income limits	Married, joint filer income limits	Head of Household filer income limits
50%	Up to $16,000	Up to $32,000	Up to $24,000
20%	$16,001 to $17,250	$32,001 to $34,500	$24,001 to $25,875
10%	$17,251 to $26,500	$34,501 to $53,000	$25,876 to $39,750

Anyone over the age of 10 can qualify for the credit, except for full-time students who are claimed as a dependent on another person’s tax return.

Married individuals filing separately can each claim the credit. Couples combined income must not exceed $30,000 in order to receive the full credit. Married couples filing separately may benefit if one spouse has an income low enough to qualify even if they would not qualify if filing jointly.

While the information above may not affect you directly, if you are a business owner it may be useful to your employees. For more information on this credit, give us a call at (262) 797-9050.