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Have you heard about the Saver's Credit?

| April 27, 2018
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The Saver's Credit is a special tax break for part-time, low-income, and moderate-income workers.

Do you work part-time, or earn less than $65,000 a year? If so, you might be eligible to fully or partly claim the Saver’s Credit – a federal tax credit that gives part-time, low-income, and moderate-income workers an extra incentive to make retirement account contributions.1

Unlike a deduction (which simply exempts a portion of your income from being taxed), a credit lets you lower your tax liability, dollar-for-dollar. A $1,000 federal tax credit, for example, saves you $1,000 in federal taxes.2

The maximum possible Saver’s Credit that a household can claim for a year is $2,000. If you contribute to an IRA, a 403(b) or 401(k), a governmental 457(b) plan, a 501(c)(18) plan, or a SIMPLE IRA or SARSEP, you might be able to take this credit.1,3

An eligible taxpayer can claim the credit for 50%, 20%, or 10% of the first $2,000 directed into a retirement account in a year. Therefore, the maximum credit amounts that an individual taxpayer can claim per year are $1,000, $400, or $200, respectively. Married joint filers who are eligible, however, can each claim respective credits of $1,000, $400, or $200.3

How do you know if you are eligible for the Saver’s Credit? First, three basic tests must be met. You a) must be at least 18 years old, b) must not be a full-time student, and c) cannot be claimed as a dependent by another taxpayer on his or her federal tax return.1
           

Then there is the adjusted gross income (AGI) test. As you see, different credit amounts correspond to different AGI ranges in 2018: 

Credit Rate                                      Married Filing Jointly      Head of Household          All Other Filers

50% of your contribution           AGI $38,000 or less             AGI $28,500 or less             AGI $19,000 or less

20% of your contribution           AGI $38,001 - $41,000        AGI $28,501 - $30,750        AGI $19,001 - $20,500

10% of your contribution           AGI $41,001 - $63,000        AGI $30,751 - $47,250        AGI $20,501 - $31,500

0% of your contribution             AGI above $63,000              AGI above $47,250              AGI above $31,500

The AGI thresholds for the credit are periodically adjusted for inflation.1

 

To claim the Saver’s Credit, fill out Internal Revenue Service Form 8880. This form becomes an attachment to your 1040, 1040A, or 1040NR. (If you want to claim this credit, you cannot file Form 1040-EZ.)3

You can work part time and qualify for the Saver’s Credit. If you are a married joint filer with a part-time job, chances are you will earn $63,000 or less at that job this year – you could be eligible. If you are a single filer, work part time, and earn no more than $31,500 this year at that job, the same could prove true. As a head of household, your limit is $47,250.1,4
   

You might want to use the Saver’s Credit creatively. Do you have a millennial son or daughter who should start saving for retirement? One idea is to loan your child funds to open a traditional IRA and claim the credit, and then, your child can partly repay you when he or she receives the credit. Or, maybe you would like to fund an IRA, but you are tight on cash. If you file your income taxes in February, and you denote on your 1040 that you are opening a traditional IRA and claiming the Saver’s Credit, you can put the refund amount into the IRA before April 15 and get that IRA going.5
    

You may even be able to claim the Saver’s Credit retroactively. If you think you were eligible for it in the past, you can file an amended federal tax return and possibly get the money back as a federal tax refund. Usually, you have up to three years after a federal income tax deadline to amend your return – so, you cannot go back too far in pursuit of the credit.4
  

This tax break is commonly overlooked. The AARP Public Policy Institute delved into some recent I.R.S. data and found that in 2014, only 5.3% of filers claimed the Saver’s Credit. Unfortunately, about 9% should have. Take a look at this credit, as the federal government is offering to lower your taxes to help you save for retirement.5

Where to begin saving for retirement?  31% of non-retirees have no retirement savings or pension according to the Fed 2015 Report on the Economic Well-Being of U.S. Households. That doesn't have to be you.  Don't wait to start investing. Sign up for the Guided Wealth Portfolios automated investment platform now to start planning for your future. Investing earlier in life may help you save more since early gains are put to work growing your retirement savings.

 

 

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit [10/26/17]
2 - nerdwallet.com/blog/taxes/tax-credit-vs-tax-deduction/ [11/15/17]
3 - turbotax.intuit.com/tax-tips/tax-deductions-and-credits/what-is-the-savers-credit/L3LyopRkK [4/16/18]
4 - tinyurl.com/y72xw4mw [3/29/18]
5 - reuters.com/article/us-column-jarvis-saverscredit/how-to-save-twice-with-the-savers-credit-idUSKCN1GQ1HN [3/14/18]

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