Saver’s Tax Credit
If you have thought about starting to save for your retirement then this is little incentive may give you an even better reason. If you contribute to a retirement account and meet certain restrictions, then the saver’s tax credit may allow you to reduce the amount of taxes that you owe by up to $1000!!
What is the saver’s tax credit?
Depending on certain restrictions such as age and income, the saver’s tax credit could save you 10% to 50% of the eligble contributions that you make to your retirement plan.
Which retirement plans are eligible?
- Traditional and Roth IRAs
- 401(k)
- 403(b)
- SIMPLE - Savings Incentive Matching PLan for Employees
- SEP - Simplified Employment Pension
- Governmental 457 plans
What’s the catch?
Of course, with all good things, there are certain restrictions:
- The saver’s credit is non-refundable. In other words, it can be used to reduce the amount of taxes that you owe (down to $0), but you will not receive a refund for anything extra.
- The saver’s credit will only allow a credit of up to 50% on contributions up to $2000. So, if you meet all the given specifications, the most you can get credited is $1000 (50% of $2000).
- You must be at least 18 years old.
- You must not be a full-time student
- You can not be claimed as a dependent by anyone else.
- You must meet certain requirements regarding your adjusted gross income (see chart)
Anything Else?
One more thing about the saver’s credit…It’s not available to those who currently file using form 1040EZ. Bankrate says:
Enter all your retirement saving amounts on Form 8880, Credit for Qualified Retirement Savings Contributions, and complete the form to arrive at your exact credit rate and amount. Once you get the dollar amount, transfer it to line 51 of your 1040 or line 32 if you file the 1040A.
The saver’s tax credit is a nice way for some taxpayers to save themselves some money. However, you should fund some sort of retirement account regardless of whether or not you can take advantage of this credit.
