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Decrease Your Tax Bill With the Retirement Saver’s Tax Credit

Saver's Credit 2015

Low or moderate-income workers in the process of saving for retirement could be in line for a tax credit they didn’t even know about.

The credit is called the Retirement Savings Contributions Credit, and can be worth up to 50 percent of your annual retirement contributions.

More information from Wall St. Cheat Sheet:

The credit reduces a taxpayer’s federal income tax and may be applied to the first $2,000 ($4,000 if married and filing jointly) of voluntary contributions an eligible worker makes to a 401(k), 403(b), or similar employer-sponsored retirement plan, or an individual retirement account.

In order to qualify, you must be age 18 or older, not a full-time student, and not be claimed as a dependent on another person’s return. As the chart above shows, the Saver’s Credit is worth a percentage of your contribution, and adjusted gross income limits do apply — the less you make, the greater the percentage. The credit is also a benefit in addition to other advantages, such as tax deductions on retirement accounts. Savers have until April 15, 2015 to make a contribution for the 2014 tax year.

Income limits for the Saver’s Credit change over time, so it’s important to check for updated figures on an annual basis. The IRS recently reminded taxpayers about the credit and noted that the income limit will increase to $61,000 in 2015 for married couples, while the limits for heads of households and individuals will rise to $45,750 and $30,500, respectively.

The IRS provides an example of how the tax credit works:

“Jill, who works at a retail store, is married and earned $30,000 in 2014. Jill’s husband was unemployed in 2014 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2014. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $29,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.” That’s a 50% return for just making the contribution. Workers need to use Form 1040, 1040A, or 1040NR to file their taxes with the credit, which is detailed on Form 8880.

Read more about the credit here.

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