Did you know that saving for your retirement can make you eligible for a tax credit worth up to $2,000? If you contribute to an employer-sponsored retirement plan, such as a 401(k) or to an IRA, you may be eligible for the Saver’s Credit. But what is the Saver’s Credit? How do you know if you’re eligible? And how much can you save?
Read on to learn everything you need to know about the Saver’s Credit.
What is the Saver’s Credit?
The Saver’s Credit, formally known as the Retirement Savings Contribution Credit, rewards taxpayers for saving for their retirement.
How much is it worth?
How much you save depends on several factors, including your income, your filing status, and how much you contributed to your retirement fund. Depending on these factors, the credit is worth either 50%, 20%, or 10% of your contributions.
View the chart below to find out how much Saver’s Credit could save in the 2020 tax year:
|Credit Amount||Maximum Adjusted Gross Income|
|Married Filing Jointly||Head of Household||All Other Filers*|
|50% of your contribution||$39,000 or less||$29,250 or less||$19,500 or less|
|20% of your contribution||$39,001 – $42,500||$29,251 – $31,875||$19,501 – $21,250|
|10% of your contribution||$42,501 – $65,000||$31,876 – $48,750||$21,251 – $32,500|
|0% of your contribution||more than $65,000||more than $48,750||more than $32,500|
Are you eligible for the Saver’s Credit?The maximum contribution that may qualify for the credit is $2,000 ($4,000 if married and filing jointly). As such, the maximum credit is 50% of that — $1000 for individual taxpayers, and $2000 for married couples filing jointly.
To qualify for the Saver’s Credit, you must be:
- 18 years old or older.
- Not currently a full-time student.
- Not claimed as a dependent on another person’s return.
Your filing status and income also affect your eligibility. If you’re a head of household making more than $48,000, or a single taxpayer making more than $32,000, you are ineligible for this credit.
Also, in order to qualify, you must contribute to a qualifying retirement plan by the day your tax return is due (usually April 15).
How do you claim the Saver’s Credit?
To claim the Saver’s Credit, fill out IRS Form 8880, Credit for Qualified Retirement Savings Contributions. Be sure to attach the form to your federal tax return. If you’re using tax preparation software to streamline the process, the software will walk you through this step and attach the form for you.
Are there any other benefits for contributing to a retirement plan?
Depending on your income, you may be eligible for other tax benefits if you contribute to a retirement plan. For example, you may be able to deduct all or part of your contributions to a traditional IRA. Click here to read more details on deducting your IRA contributions.
Paying taxes is never fun. That’s why it’s important to claim every credit and deduction that you can: to avoid paying any more than you have to.
Need help combing through your tax return for credits and deductions? The right tax preparation company can help. They’ll make sure you claim every credit that you’re eligible for so that you can get the most out of your tax season.
Ready to get started? Browse tax preparation companies below.