How to Receive an Extra Tax Credit for Your IRA

 There are numerous avenues for savvy spenders to explore when looking for a reduced tax burden. One avenue is the Saver’s Credit, or the Retirement Savings Contribution Credit.  Available to 401(k)s and IRAs, the Saver’s Credit can be worth up to $2,000 for married couples who file a joint tax return. For single filers, the credit can be worth up to $1,000. 

Who Qualifies?


The Saver's Credit is an additional gain to the tax benefits your retirement plan already receives. Think about it as an incentive to open a tax-free or tax-deferred account. Eligibility for the credit depends on whether you’re single or married, and on your income bracket. Since the Saver's Credit requirements change every year, let’s look at 2016’s numbers as an indicator for what 2017 requirements will be. You may be eligible if you are:
  • 18 or Older
  • Have not been a full-time student the previous year
  • Cannot be claimed as a dependent on anyone else's tax return

Amount of Credit

The table below illustrates the 2016 Saver's Credit requirements:

2016 Saver's Credit

Credit Rate
Married Filing Jointly
Head of Household
All Others

50% of your contribution

AGI not more than $37,000

AGI not more than $27,750

AGI not more than $18,500

20% of your contribution

$37,001 - $40,000

$27,751 - $30,000

$18,501 - $20,000

10% of your contribution

$40,001 - $61,500

$30,001 - $46,125

$20,001 - $30,750

0% of your contribution

more than $61,500

more than $46,125

more than $30,750

Table courtesy of The University of Texas System


Logically, another rule of the Saver's Credit is that you must have contributed to a 401(k) by the end of the previous year in order to receive the credit. You must also have contributed to an IRA by the filing date of the current year (April 15). 

Filing for the Credit


To begin filing for the Saver's Credit, access the IRS Form 8880, which is the Credit for Qualified Retirement Savings Contributions. Tax software (or a tax professional) can assist you with this form

The Saver’s Credit is just one of the many benefits of retirement accounts. With certain account structures you can both deduct money once you make a contribution, and  watch that money grow tax-deferred or tax-free. For more information on how to maximize your retirement savings, call us at New Direction IRA or visit www.ndira.com.
 

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