One of the best tax credit and reduction opportunities for anyone with a retirement account is also one of the least-known ones.
Do you know about the saver’s credit and what it can do for you? Here is what you need to know.
What is the saver’s credit tax break?
The saver’s credit is officially known as the retirement savings contribution credit. The saver’s credit offers special tax credits and breaks to low and middle-income level Americans who are actively saving for retirement.
This specialized tax credit can be applied in addition to any other retirement account tax benefits. And for those that qualify, a saver’s credit tax break can appreciably reduce or even sometimes eliminate a tax bill under some circumstances.
The aim of the saver’s credit is to encourage as many Americans as possible to open retirement accounts via tax incentives.
Benefits of the saver’s credit
The saver’s credit offers anyone with a retirement account.
Contributing to a retirement account is a tax deduction within itself. Tax deductions reduce the amount of taxes that can be legally levied against your income.
Tax credits, like the saver’s credit, reduce the amount of taxes you owe dollar-for-dollar.
How much of a tax break can be earned via saver’s credit?
You can claim a tax credit via the saver’s credit based on the percentage of your contribution to your retirement account.
Based on adjusted gross income (AGI) guidelines you can claim tax credits based on contribution amounts.
The saver’s credit maximum worth is $200, $400, or $1,000 for qualifying single filers or $2,000 for married joint filers.
And the saver’s credit amount is commensurate to 10%, 20%, or 50% of the maximum contribution amount.
The maximum contribution amount to a retirement account to qualify for a saver’s credit is $2,000 for a single filer and $4,000 for married joint filers.
How does one qualify for a saver’s credit?
To qualify for a saver’s credit, you must be at least 18 years old. You can’t be currently claimed by someone else as a dependent on their tax returns.
You must own a retirement account and you must have made a contribution to that account within the tax year during which you file your tax return.
However, these saver’s credit requirements do not automatically mean that you qualify for the tax credit. Your income status as a single or married person must not be higher than the saver’s credit AGI guidelines.
Typically, those in the working-class or middle-class tax bracket will qualify for the saver’s credit.
You can find the AGI saver’s credit guidelines for at the IRS website. You need I.R.S. Form 8880 to apply for the saver’s credit.