Are you worried about your retirement? Also, are you thinking about saving money from your income for post-retirement? Are you struggling to carve out the funds for retirement plans? We have come up with answers to your several questions. You have already filed IRAs or employer-sponsored plans, but you get little amount in hand to save. Therefore, here’s the solution to save more from the contributions you already have. In this article, we are going to discuss the saver’s tax credit, what its eligibility is, and how it is useful.
What is Savers Tax Credit?
The non-refundable tax credit eligible for taxpayers who make salary-deferral contributions to employed sponsored 401(k), 403(b), SIMPLE, SEP, or any governmental 457 plans is known as retirement saving contribution credit. This credit is also eligible for the person who contributes to traditional and Roth IRA. Also, it is often referred to as the Saver’s tax credit. Many factors are taken into consideration for the credit amount, such as one’s retirement plan contributions, tax filing status, and adjusted gross income.
Who is Eligible?
In general, a person must follow some eligibility criteria for availing benefits of Savers tax credit. Therefore, this eligibility criteria includes
- He/she should be at least 18 years of age by the end of the applicable financial year.
- He/she must not be a full-time student.
- He/she should not be claimed as a dependent.
- The individual’s AGI, i.e., adjusted gross income, should not be exceeded concerning the chart mentioned below.
| Credit Rate(in percentage) | Married and Files a joint return(in USD) | Files as head of household (in USD) | All other filers(in USD) |
| 50 | Maximum of 38,500 | Maximum of 28,875 | Maximum of 19,250 |
| 20 | Between 38,500 and 41,500 | Between 28,876 and 31,125 | Between 19,251 and 20,750 |
| 10 | Between 41,501 and 64,000 | Between 31,126 and 48,000 | Between 20,751 and 32,000 |
| 0 | More than 64,000 | More than 48,000 | More than 32,000 |
The above chart is for the year 2019. Also, we can interpret that the less the AGI of the person higher the Savers tax credit.
Advantages of Saver’s Tax Credit
There are several benefits to the Savers Tax Credit. A few of them include:
- The contribution to the IRAs or salary-deferral contributions is itself a tax deduction technique.
- The Savers Tax Credit will help to relieve the actual taxes owed for every dollar.
When a person is not eligible for Saver’s Tax Credit:
You are not eligible for Saver’s tax credit if:-
- Within a certain period, the amount apart from the allowable limit should be divested from the retirement account.
- One changes job, and in consequence, he/she had to change from employer-sponsored account to the traditional IRA. Also, this contribution is not eligible for Savers Tax Credit.
Conclusion
The Savers Tax Credit ultimately motivates the savings power of the individual. Therefore, if one cannot take advantage of this credit, they lose the opportunity of saving money without sweat. We hope you will take leverage of tax credit in the future.
