The Saver's Tax Credit: Adding Incentive to Fund Your Retirement

The ability to fund retirement accounts is essential if you want to be able to live comfortably once you retire. The saver's tax credit is an incentive to get individuals to contribute to their retirement accounts. Here are the basics of the saver's tax credit and who can benefit from it.

The Saver's Tax Credit

The saver's tax credit is a program that tries to create a tax advantage for those that contribute to their retirement plans. With this type of plan, if an individual chooses to contribute to their retirement plan, they will be able to claim a tax credit when they file their taxes. This tax credit will reduce the amount of taxes that they owe to the federal government on a dollar for dollar basis. This means that the government is trying to create a scenario where individuals want to contribute to their accounts in order to save some money on their taxes.

Who is Eligible

Unfortunately, this tax credit is not available for everyone that contributes to a retirement account. In order to qualify, you have to be a low income individual according to the federal government. This credit is designed to give an advantage to those that do not make much money but still put an emphasis on saving for retirement. Many low income individuals do not think that they have enough money to save for their retirement. With this program, it makes it possible for even those that make small amounts of money to contribute to a qualified retirement plan. If you are a married couple, in order to get the maximum tax credit, you will need to make less than $33,000 per year. If you are an individual, this number goes down to a maximum of $16,500. Anyone that makes less than $55,000 as a couple will be able to take advantage of a partial tax credit with this plan. If you are an individual, you can make as much as $27,750 and still receive some benefit.

Eligible Plans

In order to take advantage of this tax credit, you will need to contribute money to a retirement account. Many different methods of saving for retirement will qualify under this credit. If you contribute to a 401(k), 403(b), Simple 401k or IRA, SEP IRA, IRA, Roth IRA, or Roth 401k, you will be able to get some benefit from this tax credit.

Amount of Credit

A partial amount of your contribution to your retirement account will be deducted from the amount of taxes that you owe. The largest credit is 50 percent of what you contribute up to $2000 per year. This means that the maximum that anyone can receive is $1000. As your income increases, the amount of the credit decreases. For example, after you get past the first income bracket, a 20 percent credit will be provided. The smallest credit that you can receive is 10 percent of what you contributed.

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