Saving your money isn’t easy, though when retirement rolls around, you’ll be happy you have some cash stored away. If you work and make contributions to a retirement plan or Individual Retirement Account (IRA), you may be eligible for a specific tax benefit called The Saver’s Tax Credit. Found on tax forms under the name “Credit for Qualified Retirement Savings Contributions”, the Saver’s Tax Credit is non-refundable, though its specifically beneficial for taxpayers who don’t have access to matched-savings plans such as Individual Development Accounts (IDAs), or for those who have made retirement savings a high priority with their income.
Qualifications
To be eligible to claim the Saver’s Tax Credit, there are certain requirements that must be met:
- Must be 18 years of age or older
- Must not be enrolled as a full-time student
- Can’t be claimed as anyone else’s dependent on a tax return
- Adjusted gross income for 2016 must be below the following thresholds:
- $61,500 married filing jointly
- $46,125 filing head of household
- $30,750 single or married filing separately.
Taxpayer’s must earn income and owe taxes to claim the credit, which differs from the Earned Income Tax Credit (EITC). However, some workers who receive moderate income may be eligible for a larger EITC if they contribute pre-tax salary deductions to a retirement account and opt to claim the Saver’s Tax Credit.
These taxpayers are generally in the “phase-down” range of the EITC, where the credit decreases as taxable income increases. Because retirement contributions reduce the amount of taxable income, the moderate-income worker can receive a larger EITC.
Eligible Contributions
Only certain contributions qualify for the Saver’s Credit. Funds contributed to retirement from pre-tax salary reduction of the following plans are eligible:
- a 401(k) plan, including a SIMPLE 401(k)
- a section 403(b) annuity
- a governmental 457(b) plan
- a SIMPLE IRA plan
- a salary reduction SEP (Simplified Employee Pension)
- Individual Retirement Accounts
If you make contributions to a Roth IRA or a traditional IRA, those also qualify for the tax credit. You can claim the credit even if you deduct IRA contributions. In addition, contributions made voluntarily after-tax to an eligible retirement plan or a 403(b) annuity can qualify for the credit.
Tax Benefits
The tax credit can be worth up to a maximum of 50% of a $2,000 contribution. Those who are married are entitled to a maximum contribution each, as they are not required to combine their retirement savings contributions. The Saver’s Credit is based on the taxpayer’s adjusted gross income. Refer to the guidelines below to determine what tax benefit matches your AGI for 2016:
Married Filing Jointly Head of Household Other Filing Statuses Credit Amount
$0 – $37,000 AGI $0- $27,750 AGI $0 – $18,500 AGI 50% of contribution
$37,001 – $40,000 $27,751 – $30,000 $18,501 – $20,000 20% of contribution
$40,001 – $61,500 $30,001 – $46,125 $20,001 – $30,750 10% of contribution
More than $61,500 More than $46,125 More than $30,750 taxpayer not eligible
