The Saver’s Credit: almost a well-kept secret?
It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $1,000 tax credit. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI. The tax benefit is to increase the incentive for lower income families to put money away for retirement. Every family that qualifies should be taking advantage of this bonus tax credit.
How it works…
To begin with, check the IRS site that outlines the different percentages allowable.
For example, for 2014, if your AGI is not more than $36,000, then you’re likely to qualify for an additional 50% tax credit. This number increases annually for inflation. For 2015 it will be $36,500.
Let’s say that you earned $36,000 for all of 2014, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2014, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund.
This tax credit is on top of the tax benefit you within the IRA such as being able to write off all contributions in a Traditional IRA.
But even if you made as much as $60,000, it’s likely you can still qualify for a 10% tax credit if you file jointly (If you file as ‘head of household, than the AGI maximum is $45,000).
To be eligible for the Saver’s Credit…
The IRS stipulates that you’re birth date comes before January 2nd, 1993; furthermore, if you’ve been a full-time student during the calendar year, or claimed as a dependent on another’s return, you are not eligible.
Don’t miss out on this too little known tax credit that can save you big money on your taxes this year. Ask your accountant or investment coach more about it to see if you qualify.
By Financial Social Media and Jimmy Hancock