If you have a low- to moderate-income you can take steps now to save for retirement and receive a special tax credit.
The “Saver’s Credit” helps offset some of the first $2,000 that you voluntarily contribute to an IRA, 401(k) plan or similar workplace retirement program. Also known as the “Retirement Savings Contributions Credit”, the Saver’s Credit is available in addition to any other tax savings for which you may qualify.
If eligible, you still have time to make qualifying retirement contributions and get the Saver’s Credit on your 2016 tax returns. You have until the due date for filing your 2016 return (April 18, 2017), to set up a new IRA or add money to an existing IRA for 2016. Elective deferrals (contributions) to a 401(k) plan or similar workplace program must be made by the end of the year.
Who can claim the Saver’s Credit?
Similar to other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the tax owed. Although the maximum Saver’s Credit is $1,000 ($2,000 for married couples), it is often much less.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs.
The Saver’s Credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Roth IRA contributions are not deductible, but qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to a 401(k) or similar workplace plan are not taxed until they are withdrawn.
There are some other special rules that apply to the Saver’s Credit. To learn more or find out if you qualify, contact Ellsworth & Associates at (513) 272-8400. Mention this article and receive a free consultation.