Use IRS Form 8880 to Maximize Your Retirement Savings

For years now, the overwhelming majority of Americans have used one or more of the tax deferred retirement savings vehicles developed by the Internal Revenue Service (IRS) as their primary means of saving for retirement as opposed to traditional pensions. These tax deferred vehicles come in a number of different types, such as Traditional IRAs, Roth IRAs, 401(k)s, and other qualified plans. Although these plans come in many different forms today, the basic idea behind all of them is to allow people to save and investment for their retirement in a tax deferred manner, so that taxes only become due at retirement or when the money is withdrawn from the plan.

Today these plans utterly dominate the American retirement planning landscape and almost everyone, for minimum wage workers to multimillionaires use them to one extent or another. However, one aspect about using these retirement plans that many people over look is the Retirement Savings Contributions Credit, or “Saver’s Credit” as it is popularly known. This is a tax credit that can be regularly claimed on your annual tax return and is meant to serve as an additional incentive to use these employer sponsored retirement vehicles. However, since this credit cannot be claimed if you file your annual return using the irs 1040x, many lower earners overlook it or are unfamiliar with it altogether.

While the Retirement Savings Contributions Credit can be claimed directly on the 1040 (“long form”) or the 1040A personal tax return, in order to do so you have to calculate the credit as it applies to you, and this is what Form 8880 is for. There are a number of very specific restrictions on who can claim this credit and under what conditions they can do so. Further, the amount of the credit varies widely, depending primarily on what your Adjusted Gross Income (AGI) is and how much you contributed to a qualifying retirement plan. Although it can be complicated to figure out, you stand to be able to deduct between ten and fifty percent of your annual retirement plan contributions against your annual income tax, therefore it is worth the effort.

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