Earn Extra Credit (on Your Taxes)
When it comes to saving for retirement, it makes sense to capitalize on every available advantage, incentive, and opportunity that will get you closer to realizing your savings goals.
Did you know that the IRS offers a tax incentive called the Saver’s Credit? It rewards workers who contribute to workplace retirement plans—including 401(k)s, 403(b)s, and SIMPLE IRAs—or to traditional or Roth IRAs. The Saver’s Credit can also be taken for your contributions to an Achieving a Better Life Experience (ABLE) account if you are the designated beneficiary.
Depending on your adjusted gross income (AGI) and filing status, you can claim a 10-percent, 20-percent, or 50-percent credit for the first $2,000 you contribute to a retirement account during the year. If you are married and filing jointly, the maximum eligible contribution is $2,000 each for you and your spouse. Therefore, the Saver’s Credit can be worth as much as $1,000 for individuals and $2,000 for couples who save in retirement accounts.
How it works. You are eligible for the Saver’s Credit if you are:
• Age 18 or older;
• Not a full-time student; and
• Not claimed as a dependent on another person’s tax return
If you meet these requirements, use the table below to determine the credit rate you can receive based on your tax filing status and AGI.
Other important pointers to keep in mind:
• Participation in a retirement account is key. Remember, to qualify for the Saver’s Credit, you need to be contributing to one of the above-mentioned retirement savings accounts.
• The credit isn’t given automatically; you must claim it. The Saver’s Credit is woefully underused—62 percent of workers are unaware of this important benefit, according to a 2018 survey by the Transamerica Center for Retirement Studies. To claim the credit, you must submit Form 8880 with your tax return.
• Be sure to use the proper tax forms. In addition to Form 8880, you’ll need to file Form 1040, Form 1040A, or Form 1040NR to report your AGI. Most do-it-yourself tax preparation software will calculate the credit for you, but you may wish to consult a tax professional for help.
• Rollover contributions are not eligible. Only new contributions that you deposit into your retirement plan or IRA qualify for the credit.
• Pay attention—there are multiple deadlines. Contributions to workplace retirement plans must be made by the end of the calendar year in order to qualify for the credit. The deadline for IRA contributions is the tax filing deadline, April 15, 2019.