Posted byon January 17, 2011
Previous article: « H&R Block Free Federal Premium Tax Filing
Next article: No Foreign Transaction Fee Credit Cards »
Everyone wants to secure a comfortable and stable financial future for themselves and their families. However, saving for retirement may seem like a pipe dream if you are struggling just to pay your day-to-day bills.
Even with low income, you can still set aside money for your retirement through the Savers Tax Credit. If you qualify for the savers credit, you will receive an income tax credit of up to 50% of the first $2,000 you contribute to a retirement plan.
You can claim a percentage of the amount you contribute to a qualified retirement fund if you have an income of less than $31,000 for single filers, less than $46,500 for head of household filers, and less than $62,000 if married filing jointly in 2017. If you qualify, follow the steps below to receive your credit. See all the income limits.
You will need to contribute to a qualified retirement plan in order to claim the Saver’s Tax Credit. This includes a Traditional or Roth IRA, a 401(K) plan, 403b or 457, SEP, or SIMPLE plan, (c) voluntary employee contributions to a qualified retirement plan as defined in section 4974(c) (including the federal Thrift Savings Plan), or (d)contributions to a 501(c)(18)(D) plan.
If you do not have the money to open a retirement account, use all or part of this year’s tax refund to fund a new retirement account. By doing this, you set yourself up to receive the saver’s tax credit for next year (if your income remains under the limits). Then use part or all of next year’s tax refund to fund your retirement account again. In this way, you can begin a cycle of funding a retirement account and receiving part of your money back as a tax credit without wrecking your monthly budget.
To claim the federal savers credit you will need to fill out the savers credit form, the Form 8880 when you file your income taxes.
For more information on the retirement savers credit, check out the publication 590.
Here are a few tips to maximize the IRS savers credit from Madison:
You can still contribute for the savers credit last year. In addition, because the IRA contribution tax deadline isn’t until April, you can use your refund to fund an IRA for last year and qualify for the retirement contribution credit all in the same tax year.
Stack tax credit and deduction. The savers tax credit is in addition to any deductions you already receive for retirement plan contributions. For example, you can claim the IRA contribution credit and an IRA deduction, as long as you qualify for both. You’ll also receive the deferral benefits for retirement plans in addition to the IRS retirement credit.
Lower your income. Even if your actual income doesn’t meet the savers credit eligibility, you may still qualify because the credit is based on adjusted gross income. It’s important to see how close you are to the income guidelines, as a few additional deductions could qualify you for the saver’s credit.