A Guide to Saving for Retirement While Reducing Taxes for Low- and Moderate-Income Taxpayers
Saving for retirement offers more than just future security. Low- and moderate-income taxpayers can now enjoy immediate benefits through the IRS Saver’s Credit. This tax credit helps eligible individuals reduce their tax bill or increase their refund.
What Is the Saver’s Credit?
The Saver’s Credit, also called the Retirement Savings Contributions Credit, rewards taxpayers who contribute to retirement plans. It applies to voluntary contributions made to IRAs, 401(k)s, and other qualifying programs.
For eligible individuals, the Saver’s Credit can equal 10%, 20%, or 50% of the first $2,000 contributed ($4,000 for married couples filing jointly). The maximum credit is $1,000 for single filers and $2,000 for joint filers. However, the credit amount is subject to adjustments based on other tax credits or deductions.
Rollover contributions are excluded, and withdrawals from retirement accounts reduce the contribution amount used to calculate the credit.
Eligibility Requirements
To claim the Saver’s Credit, taxpayers must meet these conditions:
- Be 18 or older.
- Not be claimed as a dependent on someone else’s tax return.
- Not be a full-time student.
Income Limits
The adjusted gross income (AGI) thresholds for 2024 are:
- Married filing jointly: Up to $76,500.
- Head of household: Up to $57,375.
- Single or married filing separately: Up to $38,250.
Special Provisions for ABLE Accounts
The Saver’s Credit extends to individuals with disabilities contributing to Achieving a Better Life Experience (ABLE) accounts. These accounts help eligible individuals save for disability-related expenses. Contributions to an ABLE account by a designated beneficiary may qualify for the credit.
Deadlines to Contribute
Taxpayers must adhere to specific deadlines to maximize their credit:
- Contributions to IRAs (both Roth and traditional) for 2024 can be made until April 15, 2025.
- Contributions to workplace retirement plans, such as 401(k)s or 403(b)s, must be completed by December 31, 2024.
Eligible Retirement Plans
The following plans qualify for the Saver’s Credit:
- 401(k) plans for private-sector employees.
- 403(b) plans for public school and tax-exempt organization employees.
- 457 plans for state or local government employees.
- Thrift Savings Plans (TSPs) for federal employees.
How to Check Eligibility
The IRS provides a Saver’s Credit Interactive Tax Assistant tool to help taxpayers confirm their eligibility. Additionally, instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, offer detailed guidelines.
The Saver’s Credit offers a valuable opportunity for low- and moderate-income taxpayers to save for retirement while reducing their tax liability. By meeting contribution deadlines and verifying eligibility, taxpayers can take full advantage of this tax-saving tool. Don’t miss out on building your future while saving today!
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