Tax Saver's Credit 2015

How the Tax Saver's Credit Could Lower Your Tax Bill

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The Retirement Saver's Credit can help cut your taxes. Photo credit: Frenetic Studios (c) Getty Images

The Retirement Saver's Credit or Saver's Tax Credit, known formally as the IRS Credit for Qualified Retirement Savings Contributions, provides people who save for retirement with further incentive do so. If you qualify, your retirement contributions may reduce your tax bill.  it's an incentive to get you to fund your retirement account. It's a tax credit for the money you save for retirement.

If you know the difference between a tax credit and tax deduction, you know a credit is the better option.

While tax deductions can lower your taxable income and potentially put you in a lower tax bracket, a tax credit cuts the amount you owe dollar for dollar. (Refundable credits are even better, because they can lead to a refund. Unfortunately, the Saver's Credit is non-refundable.) 

Saver's Credit Eligibility 2015

To be eligible for the Saver's Tax Credit, you must contribute to a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP or employer-sponsored 401(k), 403(b) or 457(b) plan. (Rollover IRA contributions are not eligible for the Saver's Credit.) You must also be: 

  • Be age 18 or older, not a full-time student, and not a dependent of someone else.
  • Make less than the adjusted gross income limits.

The income restrictions come into play for single filers or marrieds filing separately and earning more than more than $30,000 in 2014 and $31,000 in 2015. Those filing as head of household must have adjusted gross incomes of less than $45,000 in 2014 or $45,750 in 2015.

Coupes who are married and filing jointly qualify with AGIs of less than $60,000 in 2014 and $61,000 in 2015.

Saver's Credit Amount

The amount of the credit will be as much as 50 percent, 20 percent or 10 percent of your contributions up to $2,000, or up to $4,000 if you are married and filing jointly.

That means, if you saved $1,000 in a retirement plan and are eligible for a 50% credit, you would get $500 credited to you by the IRS. That means the limit you can receive in credit is between $1,000 and $2,000, or 50% of the maximums of $2,000 for individuals and $4,000 for couples. Taxpayers with the lowest incomes get the highest credit.

How to Take the Saver's Credit 

The Saver's Credit is taken on your annual income tax return, but it requires a separate form. You can download and use IRS form 8880 (PDF), and find additional information on the credit through the IRS Publication 4703.

Saver's Credit Distributions

There may be a reduction in the amount of your Saver's Credit if you've taken any distributions or withdrawals from a qualified retirement account in the past two years. To find out whether a distribution may impact you, subtracted the amount of distribution from the total contribution amount, dollar for dollar. Only what is left will be eligible for deduction. 

When saving for retirement gets difficult, tax benefits can help ease the pain. Remember, saving in a qualified retirement plan provides you with tax-deferred investing until retirement. If you qualify for a deduction on your contribution amount, you may be able to lower your taxable income.

The Retirement Saver's Credit is just an added bonus. Those who qualify for the Saver's Credit should not miss out. 

 

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