• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Latch onto saver’s credit

Get PDF file

by on
in Small Business Tax,Small Business Tax Deduction Strategies

It’s hard enough for you to save money for retirement—how are your kids going to do it?

Strategy: Clue them in to the retirement saver’s credit. This little-known tax break can provide a big boost to low-wage earners.

The amount of the available credit depends on your adjusted gross income, tax filing status and contribution amount.

Here’s the whole story: The retirement saver’s credit is applied to the first $1,000 or $2,000 for married joint-filing couples of voluntary contributions made to a tax-qualified retirement plan such as a 401(k) or an IRA. Although greater contributions are permitted, the maximum amount allowed for the credit remains $1,000 ($2,000 for joint filers).

The credit may be equal to 50%, 20% or 10% of the qualified contribution, depending on the saver’s income bracket, indexed for inflation (see chart). Once the income level for the 10% credit is exceeded, you can’t claim any credit.  

Income tax brackets

Other restrictions may apply. For instance, the credit can’t be claimed by a taxpayer who was under age 18 last year, a full-time student or as a dependent on someone else’s tax return.

Tip: This credit is nonrefundable. Thus, it can reduce your tax bill to zero, but you can’t collect any excess credit amount.

Leave a Comment