Saving for retirement Saver’s Credit
The Internal Revenue Service is reminding low- and moderate-income workers to plan now to earn the Saver’s Credit on their 2017 tax returns.
The special tax break can help people with modest incomes save money for retirement – potentially giving them up to a 50 percent credit for the first $2,000 contributed to a retirement plan.
Also known as the Retirement Savings Contributions Credit, the Saver’s Credit helps offset part of the amount a worker voluntarily contributes to a traditional or Roth IRA, 401(k) or 403 (b) plan, and similar workplace retirement programs.
Taxpayers with an IRA have until April 17 – the due date of 2017 tax returns – to contribute to the plan and still have it qualify for 2017.
However, contributions (elective deferrals) to an employer-sponsored plan must be made by the end of the year to qualify for the credit.
An employees who is unable to set aside money for this year might want to schedule 2018 contributions soon so the employer can begin withholding in January.
The Saver’s Credit may be claimed by:
l Married couples filing jointly with incomes up to $62,000 in 2017 or $63,000 in 2018;
l Heads of household with incomes up to $46,500 in 2017 or $47,250 for 2018;
l Singles and married individuals filing separately with incomes up to $31,000 in 2017 or $31,500 in 2018.
To qualify for the credit, a person must be 18 or older and not be a full-time student or claimed as a dependent on another person’s tax return.
Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the amount of tax owed. Though the maximum Saver’s Credit is $1,000, or $2,000 for married couples, the IRS cautions that it is often much less and could be zero for some taxpayers.
The amount of the credit is based on filing status, income, overall tax liability and the amount contributed to a qualifying retirement plan. It may also be impacted by other credits and deductions or reduced by any recent distributions from a retirement plan.
To claim the Saver’s Credit, a taxpayer must complete Form 8880 and attach it to the tax return. Form 8880 cannot be used with Form 1040EZ.
In tax year 2015, the most recent year for which complete figures are available, Saver’s Credits totaling nearly $1.4 billion were claimed on more than 8.1 million individual income tax returns.