If you’re like everyone else, you dream of a long and enjoyable retirement, spending time on the beach with a sweet drink in your hand and the soft sand between your toes.
But it’s not all rosy if you don’t save up for your life after work. Fortunately, the IRS offers some tax breaks for certain taxpayers to save for the future so they can cherish every moment of their golden years.
Part 5 of our #TaxCreditCollection Series explores the Saver’s Credit.
What Is The Saver’s Credit?
Originally called the Retirement Savings Contributions Credit, the Saver’s Credit is an IRS federal tax break designed to help taxpayers save money for retirement.
It is classified as a non-refundable credit, which means it can actually reduce your tax bill to zero, but you won’t necessarily get a refund from Uncle Sam simply by claiming it.
To claim the credit, you must complete IRS Form 8880 and attach it to your personal income tax return when filing it.
Who Is Eligible For The Saver’s Credit?
Much like the Lifetime Learning Credit encourages individuals to pursue higher education, the Saver’s Credit is an incentive for people to save for their retirement. So, it mainly applies to those who are working and earning enough income to allow them to set aside some of it for the future.
There are a few tests you must meet for eligibility:
- Age: You must be 18 or older.
- Dependent status: You cannot be claimed as a dependent on another individual’s tax return.
- Education status: You cannot be a student enrolled in full-time coursework.
- Income: Your adjusted gross income (AGI) cannot exceed certain amounts – $61,500 for joint filers, $30,750 for single, married filing separately, and qualifying widow(er) filers, and $46,125 for head-of-household filers.
In addition, you cannot take advantage of this credit if you use Form 1040EZ.
How Much Is The Saver’s Credit Worth?
When claiming the Saver’s Credit, you are able to offset a portion of the first $2,000 you contribute to your retirement plan as an individual taxpayer and $4,000 for joint filers. This can be done through the following plans:
- A 401(k)
- A traditional or Roth IRA
- A SIMPLE retirement plan
- An SEP retirement plan
- A 403(b) annuity
- A 457 annuity
- A 501(c)(18) plan
- A governmental 457(b) plan
Keep in mind that rollover retirement contributions are not eligible.
The maximum value of the Saver’s Credit is $1,000 for individual taxpayers and $2,000 for married filers.
It’s important to remember that the credit amount for which you’re eligible may be less due to other tax deductions or credits you are claiming. Plus, the credit amount is reduced as your income increases. The credit is 50%, 20%, or 10% of how much you contribute to your retirement plan based on your income.
For more information about IRS tax credits you may be able to claim, consider teaming up with the accounting experts at 1-800Accountant. Call 1-800-222-6868, or click over to www.1-800Accountant.