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Making the Most of the Retirement Saver's Credit

Saving money in a 401(k) or an individual retirement account (IRA) is a smart way to build retirement savings. Not only will your money grow over time, but you won’t have to pay taxes on that money as it grows. You will only pay taxes when you withdraw the money in your retirement. In addition to deferring taxes on your contributions, you may be eligible for a tax credit just for making contributions. That tax credit is called the Saver’s Credit. Let’s see if you’re eligible to use this credit in order to save yourself some money on your federal income taxes.

Who Qualifies for the Saver’s Credit

The Saver’s Credit (formerly called the Retirement Savings Contributions Credit) provides a tax credit for low and moderate-income taxpayers who contribute to a retirement savings account. Your eligibility and how much you can receive will depend on your salary and filing status.

You generally qualify for the Saver’s Credit if you’re 18 or older, you are not a full-time student and no one can claim you as their dependent on their tax return. You also have to make contributions to an eligible retirement account. Eligible accounts include a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP, 401(k), 403(b), 501(c)(18), 457(b) plan or ABLE account.

You cannot take the Saver’s Credit for rollover contributions. You also need to make your contributions before the April filing deadline in order for them to qualify. Any distributions you take from your account will count against the contributions you made.

In addition to these basic requirements, you also have to meet the income guidelines. For the 2018 tax year, which you file by April 2019, single filers can claim all or part of the credit if their adjusted gross income (AGI) is $31,500 or less. A taxpayer filing head of household can claim all or part of the credit if their AGI is $47,250 or less. Taxpayers filing jointly can claim all or part of the credit if their AGI is $63,000 or less.

What the Saver’s Credit Is Worth

Making the Most of the Retirement Saver's Credit

The Saver’s Credit is worth 50%, 20% or 10% of your contributions to an eligible retirement account, up to $2,000 for single filers and heads of household or $4,000 for joint filers. The exact amount you can claim will depend on your AGI. The table below shows the credit rates for different taxpayers.

2018 Saver’s Credit Income Limits
Credit Amount Single Head of Household Joint Filers
50% of contribution AGI of $19,000 or less AGI of $28,500 or less AGI of $38,000 or less
20% of contribution $19,001 – $20,500 $28,501 – $30,750 $38,001 – $41,000
10% of contribution $20,501 – $31,500 $30,751 – $47,250 $41,001 – $63,000
0% of contribution more than $31,500 more than $47,250 more than $63,000

So if you are filing as single, you can receive a credit for 50% of your retirement contributions as long as your AGI is $19,000 or less. You can receive a credit for 20% of your contributions if your AGI is between $19,001 and $20,500. You can receive a credit for 10% of your contributions if your AGI is between $20,501 and $31,500. If your AGI is above $31,500, you are not eligible to receive the Saver’s Credit.

How to Claim the Saver’s Credit

You can claim the Saver’s Credit by filling out IRS Form 8880 and attaching it to your 1040 when you file your taxes.

Doubling Up on Tax Benefits

Contributing to a tax deductible retirement account, like a 401(k) or traditional IRA, will decrease your taxable income. So if you can also claim the Saver’s Credit for those contributions, you are doubling your tax benefits.

Just remember that not all retirement accounts take pretax money. For example, money that goes in a Roth IRA already had income taxes removed. You can still claim the credit for money you contribute to a Roth IRA, but you do not double your benefits the way you do with a tax deductible account.

As a reminder, the annual IRA contribution limit for the 2018 tax year is $5,500 if you under age 50 and $6,500 if you are age 50 or older. For 2019 , the contribution limit will increase by $500. You can review IRA contribution limits in this article.

The Takeaway

Making the Most of the Retirement Saver's Credit

The Saver’s Credit is often overlooked but it is a great way to save you money on your federal income taxes. The benefits are doubled if you contribute to a tax-advantaged account like a 401(k) or traditional IRA. Just keep in mind that there are a few requirements you must meet in order to qualify for the credit. You need to be age 18 or older, you cannot be a student and no one can claim you as their dependent. You also need to contribute to an eligible retirement account and have an income below a certain threshold. The threshold varies by filing status. If you need help filing your taxes, you should consider contacting a tax professional. You can also claim the Saver’s Credit using some of this year’s best online tax filing software.

Photo Credit: ©iStock.com/Photodjo, ©iStock.com/jxfzsy, ©iStock.com/Rawpixel

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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