If you’ve ever given more than passing thought to retiring, you’ve probably thought of a whole host of reasons why you should be saving for it. The reasons range from insecurity about social security to the dream of seeing the world in luxury. Chances are you’ve also justified not saving as much as you could or should by reasoning that your money is best spent now while you know you can enjoy it. However, no matter where you fall on the retirement saving spectrum, if you are among the majority of Americans with low or moderate income, you’ve also come to the conclusion that saving for retirement is hard.
Find out now: How much do I need to save for retirement?
The federal government has sought to encourage retirement savings for years by allowing you to deduct contributions to your 401(k) and IRA from your income and thus lower your tax bill. Now there’s a new credit in town called the Saver’s Credit, and it is designed to benefit low and moderate income individuals and couples.
Eligible taxpayers will be able to receive a tax credit of up to 50% of their retirement contributions. The credit can be used to reduce the amount of income taxes you owe or increase the size of your refund.
The amount of credit you are eligible for depends on your filing status and income. The credit is tiered at 10%, 20% and 50% of savings.
Single, Married Filing Separately or Widow(er): If you file your return using one of these statuses and your adjusted gross income is between $19,751 and $30,500, you can receive a 10% credit. If your income is between $18,251 and $19,750, though, a 20% credit is possible, and if your adjusted gross income is below $18,250, you’re eligible for the full 50% credit.
Related Article: Making the Most of the Retirement Saver’s Credit
Head of Household: If you file using this status and your adjusted gross income is between $29,626 and $45,750, you can receive a 10% credit. If your income is between $27,376 and $29,625, you can receive a 20% credit. Only those with an adjusted gross income below $27,375 are eligible for the full 50% credit.
Married Filing Jointly: If you’re married and your adjusted gross income is between $39,501 and $61,000, you are eligible to receive a 10% credit, if your income is between $36,501 and $39,500, you can get a 20% credit, and if your adjusted gross income is below $36,500, you can get the full 50% credit
The Fine Print
The saver’s credit is not a refundable tax, which means it can’t reduce your tax bill below zero and generate a refund. To that end, some taxpayers who have other deductions and credits may not receive any benefit from the saver’s credit.
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