If you contribute to an IRA or an employer-sponsored 401(k), you may be eligible for the Saver’s credit, commonly known as the Retirement Savings Contributions Credit.
According to the IRS, beginning in 2018, if you were the intended beneficiary, you may also be eligible for a tax credit for contributions made to your “Achieving a Better Life Experience (ABLE)” account, a kind of savings account.
Benefit Amounts
According to the Internal Revenue Service (IRS), based on your adjusted gross income recorded on your Form 1040, the amount of the credit will be 50%, 20%, or 10% of the amount of the following: contributions made by the taxpayer during the tax year to a 401(k) plan, SEP-IRA plan or SIMPLE IRA plan.
- Also Read: 4 Signs That Taking Early Retirement Might Not Be the Right Move for You
- Also Read: Why the FERS Supplement Remains One of the Best-Kept Secrets in Federal Retirement
- Also Read: How Roth IRA Impacts Your Retirement Planning: Find Out Here
The IRS emphasizes that rollover donations are not eligible for the tax credit. You may also be penalized for any recent distributions you received from an employer-sponsored retirement plan or an individual retirement account (IRA). This implies that if you are now in the retirement or distribution phase of the retirement accounts to which you have made contributions, you may be able to claim this tax credit simultaneously.
The highest amount that someone may qualify for with the Saver’s credit is $1,000, which means that the maximum amount you can claim is $2,000 if you qualify for $1,000. It was included in the Balanced Budget Act of 2016 and became effective on January 1st, 2018. The 2017 tax credits were approved as part of that legislation. Additionally, the $2,000 limit is for your combined eligible contributions if you file as married and filing jointly.
Suppose you contributed less than $2,000 to your IRAs or 401k plans in a given tax year. In that case, you typically cannot claim the Saver’s credit because it must exceed a minimum dollar amount based on your adjusted gross income.
Roth IRA Contribution Eligibility
To be eligible for this credit, you must have a traditional or Roth IRA that has been open for at least one year from when you file your taxes. For instance, if you opened an account in mid-December and did not contribute until late February, it would not count towards your eligibility. On the other hand, if the account was opened before December 1st, but contributions continued into 2019, those would qualify toward eligibility even though you purchased them within a full calendar year after its initial opening date.
Limitations on Contributing to IRAs/401(k)s
It would be best to contribute to an IRA or employer-sponsored 401(k) plan to be eligible for this credit. You may not contribute more than the maximum allowed by law (in 2020, it was $2,500, and in 2021 and 2022, it will increase to $3,000). Suppose you have been splitting contributions with your spouse. In that case, you both must have contributed at least that much to be eligible for the credit. For non-working spouses filing taxes jointly to claim this credit, their combined income cannot exceed $62,000. Wherever possible, these limits should be adjusted so that married couples who are filing jointly can use the full amount of whatever their limits allow towards getting a tax credit.
Where to Claim the Saver’s Credit on your Tax Return
You can claim this credit by first looking up your total eligible contributions made to all IRA accounts during the year. Next, multiply this amount by 10%, 20% or 50% depending on what is allowed for your adjusted gross income (refer to the chart above). Finally, enter this amount on line 52 of Form 1040, line 32 of Form 1040A, or line 8 of Form 1040NR. You may want to consult with a tax advisor if you are unsure how much you should be claiming, as it varies based on income levels and specific circumstances.
Contact Information:
Email: [email protected]
Phone: 2129517376
