Financial Freedom

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Super Saver’s Credit

Think you can’t afford to contribute to a retirement plan; the IRS may disagree with you and offers a great opportunity to help millions of Americans benefit with the Saver’s Credit. The credit is available to Individuals who contribute to Traditional and Roth IRAs, SIMPLE, SEP or any qualified employer retirement plan, with Adjusted Gross Income (AGI) below certain levels. You can claim a saver’s tax credit for contributions made to a qualifying retirement plan by filing Form 8880 with your federal tax return (1040 or 1040A). The credit off-sets contributions for the first $2,000 or $4,000 for married filers filing jointly. You have until the end of your tax year to make a contribution. One caveat, the credit is only against tax and is non-refundable. The chart below shows the amount of the saver’s credit for different filers with AGI limits in 2015:

Amount of Saver’s Credit Married Filing Jointly Head of Household Single / Others
50% of first $2,000 deferred $0 to $36,500 $0 to $27,325 $0 to $18,250
20% of first $2,000 deferred $36,501 to $39,500 $27,326 to $29,625 $18,251 to $19,750
10% of first $2,000 deferred $39,501 to $61,000 $29,626 to $45,750 $19,751 to $30,500

             Source: IRS.gov

Other special rules defined by the IRS that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

A credit like the saver’s credit can increase your refund or reduce the tax you owe; the maximum saver’s credit is $1,000, $2,000 for married couples. This credit is in addition to any deductions your contributions may qualify you for.

For example, a married couple filing jointly earns $36,000 in 2015 and contributes $1,000 to a Traditional IRA; theoretically, they would qualify for a deduction of $1,000 from taxable income and a $500 credit against taxes; a double benefit.

If the married couple continues to contribute $1,000 a year for the next 29 years earning an average return rate of 8 percent, they can expect to have $123,346 saved for retirement; quite a hefty sum for a modest income, now that’s SUPER!

Other resources:  Financial Freedom A Guide For Personal Finances

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