Do You Qualify for the IRS Saver’s Credit?
The IRS offers taxpayers an incentive to reduce their tax bill by saving for retirement. The Retirement Savings Contribution Credit, also known as the Saver’s Credit, allows eligible taxpayers to reduce their federal income taxes by saving for retirement using a qualified retirement plan, such as a 401(k) or Individual Retirement Account (IRA).
The experienced accounting and tax professionals at Gudorf Tax Group, LLC, can analyze your circumstances to determine whether you qualify for the Saver’s Credit and help you optimize your tax situation to reduce tax liability and improve yearly cash flow.
What Is the Saver’s Credit?
The Retirement Savings Contribution Credit, also known as the Saver’s Credit, is a non-refundable tax credit for contributions made to a 401(k), 403(b), or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account. In this scenario, “non-refundable” means the credit cannot exceed a person’s federal income tax for the year. Depending on the taxpayer’s Adjusted Gross Income (AGI) and tax filing status, the taxpayer can claim the credit for 50%, 20%, or 10% of the first of the first $2,000 contributed to a qualifying retirement account. The maximum credit is $1,000 for single filers and $2,000 for married couples filing jointly.
Do You Qualify for the IRS Saver’s Credit?
To qualify, a taxpayer must meet the following conditions:
- Contribute to an employer-sponsored retirement plan (401(k), 403(b), 457(b), or a traditional or Roth IRA)
- Be 18 years of age or older
- Not be a full-time student during the calendar year
- Not be claimed as a dependent on another person’s tax return
- Fall within income limits established by the IRS (see below)
The retirement contribution must be new. Rollovers from a 401(k) into a new retirement account or IRA do not qualify. Taxpayers have until April 15 to make a contribution that could qualify for the Saver’s Credit for the prior tax year.
How Much is the Saver’s Tax Credit?
The amount of the Saver’s Tax Credit is based on the taxpayer’s annual retirement plan contribution (minus any distributions received from the plan) and the taxpayer’s Credit Saver’s Rate, which ranges from 10% to 50% based on the taxpayer’s AGI and filing status. The maximum credit is $1,000 for single filers and $2,000 for married couples filing jointly. The Saver’s Credit is a credit, not a deduction, which means it is a dollar-for-dollar reduction of the filer’s taxable income.
How to Apply for the Saver’s Credit
To claim the Saver’s Credit, taxpayers should complete IRS Form 8880, “Credit for Qualified Retirement Plan Contributions,” and attach it to their Form 1040. The accounting and tax professionals at Gudorf Tax Group can evaluate your financial situation to determine whether you qualify, prepare your tax filing documents, and create a custom tax strategy to help you keep more of what you earn.
Contact Gudorf Tax Group Today
Contact Gudorf Tax Group today to schedule an appointment with our accounting and tax preparation professionals.
