Did you realize that there is a saver’s credit available to you for your contributions to retirement plans? There are income limits, but if you fit the limits, this type of credit can be exactly what you need to get you started on your retirement savings activities.
Plan Now to Get Full Benefit of Saver’s Credit; Tax Credit Helps Low- and Moderate-Income Workers Save for Retirement
Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2018 and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $4,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2018 tax return. People have until April 15, 2019, to set up a new individual retirement arrangement or add money to an existing IRA for 2018. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2019 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:
- Married couples filing jointly with incomes up to $63,000 in 2018 or $64,000 in 2019;
- Heads of Household with incomes up to $47,250 in 2018 or $48,000 in 2019; and
- Married individuals filing separately and singles with incomes up to $31,500 in 2018 or $32,000 in 2019.
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 $2,000, $4,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.