Among the many incentives the government has offered as of late (Cash for Clunkers, New Home Buyer Credit, Energy Tax Credit), most have been focused around the consumer (you!) buying stuff. While this can be a good way to stimulate the economy, it can have a negative effect on your pocketbook. However, the government does have an awesome tax credit available to those who qualify that actually rewards saving! It is officially called the Retirement Savings Contribution Credit, or Saver’s Credit for short, and it is designed to encourage low-to-modest income individuals and families to save for retirement (which is great if you read about What Young People Should Know About Social Security).
How To Qualify For The Saver’s Credit
You can qualify for this “Saver’s Credit” if you meet the following criteria:
- Income Limits
- You contributed to a Qualified Retirement Plan during the year
- You are NOT a full-time student (part time does count though!)
- You are 18 or older
- You are NOT claimed as a dependent
Income Limits for Saver’s Credit
The income limits for the Retirement Savings Contribution Credit are based on your IRS filing status:
- Single, Married Filing Separately, Widow: $26,500
- Head of Household: $39,750
- Married Filing Jointly: $53,000
How Much is the Saver’s Credit?
The amount you receive for the tax credit is based on a percentage of your retirement contributions, with a maximum credit of $1,000 for unmarried filers, and $2,000 for married filers. The percentage is determined by your adjusted gross income and your filing status.
The percentage you receive for the tax credit is 10%, 20%, or 50% depending on your adjusted gross income. The lower your adjusted gross income, the higher the tax credit percentage.
What Do I Need To Do?
The great part about this credit is that most workers already are a part of some type of retirement plan, especially 401(k)s or Thrift Savings Plans. A great way to tell if you made a contribution to a qualified plan is to look on your W-2, and see if there is an amount listed in Box 12B. This will tell you if you contributed to a 401(k), Thrift Savings Plan, or 403(b).
Also, this credit is in addition to other benefits you may receive for savings. For example, most workers in this income level may deduct all or part of their contributions to a traditional IRA. Also, contributions to a 401(k) or 403(b) are not taxed until they are withdrawn.
You can contribute to the following types of qualified retirement plans: 401(k), traditional IRA, Roth IRA, SEP-IRA, Simple IRA, Thrift Savings Plan, or 403(b) Plans.
To claim the credit, you need to fill out IRS Form 8880 and attach it to your Form 1040 or 1040A.
Hope this helps you save some money!
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Yet another reason to contribute to a retirement plan! I wouldn’t qualify, but good to know!
Now this is a good piece of information. I’m glad I haven’t filed my taxes yet. Hopefully Turbo Tax will have this already calculated for me once I do file.