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 $2,000 tax credit per family. 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.
To be eligible for the Saver’s Credit…
- You must be 18 years or older
- You must not have been a full time student (you can be a part-time student)
- You must not be claimed as a dependent on another person’s tax return.
- Your Adjusted Gross Income (AGI) must be below $63,000 (married filing jointly), or $31,500 (single).
How it works…
In 2018, if your tax status is married filing jointly and your AGI is not more than $38,000, and you meet the other requirements, then you qualify for an additional 50% tax credit. If you are above that income level it goes to a 20% tax credit from $38k up to $41k. Then it is a 10% tax credit from $41k until you are phased out above the $63,000 threshold.
Let’s say that you earned $38,000 for all of 2018, 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 2016, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund. On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000. That is $2000 cash money in your pocket for contributing $4000 into a retirement account. $2000 is the maximum tax credit any family can receive.
This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.
Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.
Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested. And at the same time you are putting money into a growing retirement account. A win win for sure. You can open up an IRA and contribute to it for tax year 2018 up until April 15th and still get the credit this year. Give us a call and we can get you set up with a Roth IRA or similar, no upfront costs.
By Jimmy Hancock
References
- IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 13 Dec. 2018. Web. 4 Feb. 2019. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.