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The saver's credit allows certain low- to middle-income individuals to claim a tax credit for making contributions to an IRA or a workplace retirement account
You probably know about the benefits of tax-deferred investment accounts. But did you know that there is a special IRS provision that potentially allows you to save money just for being a retirement saver? The so-called "saver's credit," formally known as the Retirement Savings Contributions Credit, permits certain low- to middle-income workers to claim a tax credit for making eligible contributions to an IRA or most qualified workplace retirement plans.
But this tax break is currently going largely untapped. According to a study by the nonprofit Transamerica Center for Retirement Studies, only about a third of U.S. workers are aware of the saver's credit.1
The IRS Says …2
Here is a rundown on the basic rules governing the credit. In order to claim the credit, the IRS requires that you:
Retirement plans eligible for the credit include:
The Amount You Can Claim - According to the IRS, "The amount of the credit is 50 percent, 20 percent or 10 percent of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A)."
Here's a breakdown for tax year 2016:
Married filing jointly
Head of household
All other filers*
50% of contribution
AGI not more than $37,000
AGI not more than $27,750
AGI not more than $18,500
20% of contribution
10% of contribution
0% of contribution
more than $61,500
more than $46,125
more than $30,750
*Single, married filing separately, or qualifying widow(er).
To learn more about the saver's credit visit the IRS website. For help shaping up your retirement planning and/or tax planning strategy contact your financial advisor.
1Source: Transamerica Center for Retirement Studies, "Retirement Throughout the Ages: Expectations and Preparations of American Workers," May 2015.
2Source: IRS, "Retirement Savings Contributions Credit," updated February 22, 2016.
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