Fidelity Select Fundranker

Fundranker Blog—QRSC Credit

QRSC Credit

What is the Qualified Retirement Savings Contribution Credit? To put it simply, under certain conditions, the IRS is willing to reduce your taxes if you contribute to one or more qualified retirement savings plans, which include traditional and Roth IRAs among others (see the instructions for Form 8880). What’s more, you can take this tax credit even if you also take an IRA deduction for your contribution.

Unfortunately, this tax bonanza is not available to all of us. It is phased out when your AGI reaches certain levels. First, only $2,000 of contributions is considered per individual. Second, for 2008, married taxpayers filing jointly with AGI of $32,000 or less, head-of-household taxpayers with AGI of $24,000 or less, and other taxpayers with AGI of $16,500 or less potentially can claim one-half of their contributions as a tax credit; married taxpayers filing jointly with AGI of $34,500 or less, head-of-household taxpayers with AGI of $25,875 or less, and other taxpayers with AGI of $17,250 or less potentially can claim one-fifth of their contributions as a tax credit; married taxpayers filing jointly with AGI of $53,000 or less, head-of-household taxpayers with AGI of $39,750 or less, and other taxpayers with AGI of $26,500 or less potentially can claim one-tenth of their contributions as a tax credit; above these limits, the tax credit is completely phased out. For 2009, for married taxpayers filing jointly, these limits are raised to $33,000, $36,000, and $55,500; for head-of-household taxpayers, they are raised to $24,750, $27,000, and $41,625; for other taxpayers, they are raised to $16,500, $18,000, and $27,750. Third, the potential tax credit also is limited by your tax liability. In other words, this tax credit is not refundable; you cannot get a tax refund because of this credit.

Check this tax credit out when you do your 2008 taxes this year. Form 8880, Credit for Qualified Retirement Savings Contributions, is an uncomplicated form and could save you hundreds of dollars off your federal taxes for 2008.

Posted 1/19/09 8:22pm ET in Investing

Submit a Comment

Your Name:
Your Email Address (not displayed with comment):
Your Comment: