Save More for Retirement with The Saver’s Credit

April 25, 2014

Personal Finances

The Saver’s Credit is a tax credit that partially subsidizes the retirement savings of lower-income taxpayers. Government will actually help low-income earners save for retirement by giving them up to $2000 credit to invest in their  retirement savings!

Who Qualifies for the Saver’s Credit?

Also known as the Credit for Retirement Savings Contributions, the Saver’s Credit is available to you except if:

  • You’re married and filing jointly, with income OVER $55,500
  • You’re single, married filing separately, or widowed with inciome OVER $27,750
  • Head of household with income OVER $41,625
  • You’re under 18
  • You’re claimed as a dependent on someone else’s tax return
  • You’re a full-time student

What is the Saver’s Credit Worth?

The Saver’s Credit can be worth up to $2,000 for married couples and $1,000 for single individuals. You do not forgo any of the other tax advantages of saving for retirement if you choose to take this credit. For example, you can still deduct your IRA contribution and receive future Roth IRA distributions tax-free even if you are eligible for and claim the Saver’s credit.

How the Credit Works

The Saver’s Credit is a non-refundable tax credit. When you file your tax return, you or your tax preparer will need to

Retirement Planning

include Form 8880, Credit for Qualified Retirement Savings Contributions. Depending on your income, you will receive a credit of between 10% and 50% of the amount you saved for retirement, up to $1,000 (single) or $2,000 (married). The total saved for retirement includes amounts you contributed to your 401(k) plan, your regular IRA, your Roth IRA, as well as several other qualified retirement plans.

The Saver’s credit is a non-refundable credit, which means that although the credit will either increase your refund or

decrease the amount you owe, the credit cannot exceed the total of your tax liability. For example, if your total tax for the year is $800, you have withholdings of $1,250, and you are eligible for a $1,000 Saver’s credit, your income tax

refund will be $1,250, not $1,450. The $1,000 credit eliminates the full $800 of tax owed for the year, making your tax liability zero. It does not create an additional refundable $200 overpayment.

You Can’t Take the Money and Run

Your credit will be reduced and possibly eliminated if you take a distribution from your retirement plans during the two years before, the year of, or anytime before the due date of your tax return.

By Michael Rubin,

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