Looking for a way to boost your retirement savings and decrease your taxes? The Saver’s Credit is the perfect tool for you, if you make less than $30,000 (single), $60,000 (married filing jointly), or $45,000 (head of household) in 2014. Other qualifying criteria include:
- Eligible taxpayers must be at least 18 years of age.
- Anyone claimed as a dependent on someone else’s return cannot take the credit.
- A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
This credit is perfect for young military members who don’t have a lot of income. The Saver’s Credit offsets a portion of the first $2,000 that each worker contributes to an IRA, 401(k), or Thrift Savings Plan (TSP) account. The Saver’s Credit can provide up to 50% credit for qualified retirement savings, calculated on a scale that uses Adjusted Gross Income (AGI.)
The Saver’s Credit is claimed using Form 8880 , which includes instructions have details on figuring the credit correctly.
Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 (single or head of household) or $2,000 (married filing jointly), the IRS cautioned that it is often much less. Due to the impact of other credits and deductions, the Saver’s Credit could be zero even for taxpayers who meet the income requirements. For the 2011 tax year, claimed Saver’s Credits averaged $128 (single), $215 (married filing jointly), and $166 (heads of household.)
The Saver’s Credit supplements other tax benefits to tax-advantaged retirement accounts. Other tax benefits, depending on account type, might include a deduction from income for the current tax year (traditional accounts), or tax-free earnings and distributions during retirement (Roth-style accounts.)
While IRA contributions may be made until the date a tax return is due (usually 15 April of the following year), contributions to workplace programs such as 401(k), 403(b), or TSP accounts must be made before the end of the calendar year.
If you are in a lower-income bracket, you might be able to use the Saver’s Credit to decrease your taxes while also increasing your retirement savings. It doesn’t work for everyone, but it is a great benefit for those who qualify.