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Topic: Retirement Savings Contributions Credit  (Read 1241 times)

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Retirement Savings Contributions Credit
« on: March 14, 2004, 08:22:26 PM »
IRS TAX TIP 2004-50

This tax credit, which will be available only through 2006, could help you
offset the cost of the first $2,000 contributed to IRAs, 401(k)s and
certain other retirement plans, says the IRS.

The Retirement Savings Contributions Credit applies to individuals with
incomes up to $25,000 ($37,500 for a head of household) and married
couples with incomes up to $50,000. You must also be at least age 18, not
a full-time student, and not claimed as a dependent on another person's
return.

The credit is a percentage of the qualifying contribution amount, with the
highest rate for taxpayers with the least income, as shown in this chart:

Credit Income for Income for Income for
Rate Married, Joint  Head of Household Others
50% up to $30,000    up to $22,500 up to $15,000
20% $30,001-32,500     $22,501-24,375 $15,001-16,250
10% $32,501-50,000     $24,376-37,500 $16,251-25,000

When figuring this credit, you must subtract the amount of distributions
you have received from your retirement plans from the contributions you
have made. This rule applies for distributions starting two years before
the year the credit is claimed and ending with the filing deadline for
that tax return.

Form 8880, "Credit for Qualified Retirement Savings Contributions," is
used to figure the amount of the credit, which is then reported on line 48
of Form 1040. For your 2003 tax return, you would first subtract
distributions received from January 1, 2001, through April 15, 2004, from
your total 2003 retirement contributions. Then you would multiply the
result (but not more than $2,000) by the credit rate that applies to your
filing status and income level. The maximum credit amount allowed for 2003
is $1,000, or up to $2,000 if married filing jointly and each spouse made
contributions.

The subtraction rule does not apply to distributions which are rolled over
into another plan or to withdrawals of excess contributions.

The Retirement Savings Contributions Credit is in addition to whatever
other tax benefits may result from the retirement contributions. For
example, most workers at these income levels may deduct all or part of
their contributions to a traditional IRA. Contributions to a 401(k) plan
are not subject to income tax until withdrawn from the plan.



HT TAX (US & UK Tax Services)
e-mail:h.tanhaie@ntlworld.com


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