This is how you can get a tax credit for saving for your retirement plan: Check out if you qualify and how much you can get
The US government wants Americans to save for retirement. To encourage them to do so taxpayers are offered reductions on their tax liability when they file.
Once again there are concerns about the state of Social Security and whether it will become insolvent. Under current estimates the program’s Trust Fund will run out of funds by 2034, but that may come sooner. If Trump’s proposal to eliminate taxes on Social Security benefits, currently only 40% pay them, as well as tips and overtime pay, is passed into law the date could advance by three years.
While only a little more than a third of non-retirees think that this will be a major source of income, among current retirees 58% say that it is according to a Gallup report earlier this year. These kinds of uncertainties have those planning their retirement looking at other forms of savings to live off of in their golden years like 401(k) plans.
These retirement savings investment programs are predicted to be non-retired American’s No. 1 income source when they retire. The good news is that there is a tax credit which will allow you to reduce your tax liability when you save for retirement. Here’s a look at how you can kill two birds with one stone.
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Saver’s Credit: the $2,000 tax credit for putting money in your retirement plan
The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is targeted at lower to middle income taxpayers and is fairly straightforward to claim. However, few know about this credit among the very group of taxpayers that would most benefit from it.
Taxpayers 18 and older who are not full-time students, can claim a tax credit on 10, 20 or 50 percent of their contributions to a retirement account depending on their adjusted gross income (AGI). The Saver’s Credit is capped at $1,000 for single taxpayers and $2,000 for a married couple filing jointly.
IRS eligibility requirements to claim the Saver’s Credit
- Age 18 or older,
- Not claimed as a dependent on another person’s return, and
- Not a student.
If you were enrolled as a full-time student at any time during 5 months of the calendar tax year at a technical, trade, or mechanical school, you will not be eligible to claim the Saver’s Credit. This includes on-farm training courses through a school or government agency.
You should also check out: The IRS tax credit that 1 in 5 taxpayers are missing out on: check out if you qualify to receive up to $7,830
You must also meet an income eligibility requirement in order to be able to claim this credit. The AGI thresholds for 2024 are as follows according to the IRS:
| Credit rate (as a percentage of your contribution) | Married filing jointly | Head of household | All other filers* |
|---|---|---|---|
| 50% | $46,000 | $34,500 | $23,000 |
| 20% | $46,001- $50,000 | $34,501 - $37,500 | $23,001 - $25,000 |
| 10% | $50,001 - $76,500 | $37,501 - $57,375 | $25,001 - $38,250 |
| 0% | more than $76,500 | more than $57,375 | more than $38,250 |
What retirement accounts qualify for the Saver’s Credit?
The IRS states that the following retirement accounts can qualify for the 10, 20 or 50 percent credit amount of contributions made, up to the $1,000 cap for single taxpayers and $2,000 for married couples filing jointly:
- contributions you make to a traditional or Roth IRA,
- elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan,
- voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan,
- contributions to a 501(c)(18)(D) plan, or
- contributions made to an ABLE account for which you are the designated beneficiary (beginning in 2018).
Only new money contributions will qualify for the Saver’s Credit. Money that rolls over from one retirement account to another will not count. Furthermore, recent payouts from a retirement plan may reduce eligible contributions. For more information check out the IRS Saver’s Credit website.
Taxpayers generally have until Tax Day when they file their fiscal declaration to contribute to their traditional IRA and still claim a deduction on their tax return.
The amount of the credit you claim will reduce what you owe in taxes to Uncle Sam dollar for dollar. Additionally, if the retirement account you put your money into comes with a tax deduction, such as a 401(k) or traditional IRA, you will lower your AGI, potentially helping you to claim a greater percentage of your contribution.
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