What is the Retirement Savings Contributions Credit or otherwise known as the Saver’s Credit?
Certain types of taxpayers are able to save money on their taxes and are able to take a tax credit for making eligible contributions to an IRA or employer-sponsored retirement plan such as a 401k or 401b. In fact, retirement plans eligible for the saver’s credit include traditional or Roth IRA; 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and other voluntary after-tax employee contributions to qualified retirement and 403(b) plans.
Retirement Savings Contributions Credit (Saver’s Credit) 401k
Below outlines some basic information about the Retirement Savings Contributions Credit (Saver’s Credit). Taxpayers are encouraged to contribute to these plans and make use of the credit.
What taxpayers eligible for the retirement saver’s credit?
The requirements for taking the Retirement Savings Contributions Credit are pretty basic and a taxpayer can eligible for the credit if you’re:
- Age 18 or older;
- Not a full-time student; and
- Not claimed as a dependent on another person’s return.
- Your adjusted gross income (defined later) is not more than:
- $59,000 for 2013 ($60,000 for 2014) if your filing status is married filing jointly,
- $44,250 for 2013 ($45,000 for 2014) if your filing status is head of household (with qualifying person), or
- $29,500 for 2013 ($30,000 for 2014) if your filing status is single, married filing separately, or qualifying widow(er) with dependent child.
The amount of tax reduction that a taxpayer can receive from the saver’s credit is generally based on the contributions they make make and your credit rate. According to the IRS, you can look at Publication 590, Individual Retirement Arrangements (IRAs), or the instructions for Form 8880 (PDF), Credit for Qualified Retirement Savings Contributions, for more information.
IRS Form 8880
For most taxpayers, the amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly). This all depends on your adjusted gross income (AGI)(reported on your Form 1040 or 1040A) for the taxpayer in which you are taking the credit. The amount of the credit you can get is based on the contributions you make and your credit rate. The credit rate can be as low as 10% or as high as 50%. Your credit rate depends on your income and your filing status. See Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate.
Lastly, it is important to remember that he Retirement Savings Contributions Credit is only one tax tool that you can use to help save for retirement. You will get its benefits in addition to other tax benefits which may result from the retirement contributions according to IRS tax law. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
Retirement Savings Contributions Credit
Most importantly, this is a big deal for taxpayers because receiving a credit is better than receiving a deduction. A tax credit will reduce taxes dollar for dollar and cause most taxpayers to pay less taxes. Therefore, it is a credit oppotunity to save on taxes if you are able to take the retirement contribution savings credit or what it is better known as as the saver’s credit. Tax software such as TurboTax or H and R Block will also help figure out if you are eligible to to take this tax credit, save money on taxes, and possibly have a bigger refund.
Lastly, remember that it is of vital importance to contribute to retirement accounts at the proper time. Taxpayers need to contribute to their 401(k) or similar retirement plan by Dec. 31 of the tax year in order for it to be valid contribution. However, taxpayers have until April 15 to set up a new IRA or add money to an existing IRA and still have it count for for the past tax year.