For many people, saving for retirement can be a challenge.
This is especially true for the 80% of Americans that are living with debt. Fortunately, the IRS has a special tax credit that's designed specifically for low- and moderate-income taxpayers.
What is The Saver’s Credit?
The Saver's Credit, formerly known as the Retirement Savings Contributions Credit, provides some taxpayers with a special tax break. Qualified taxpayers can claim this credit for some of the income that is contributed to a qualifying retirement plan.
Eligible retirement accounts include:
- Traditional or Roth IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Thrift Savings Plans (TSP)
- SIMPLE IRAs
- Simplified Employee Pension (SEP) plans
- Section 501(c)(18) plans
It’s important to note that contributions are not eligible for the Saver's Credit if you have completed a rollover from a qualified plan or an IRA. Additionally, if you took any distributions from a retirement plan or IRA, this would reduce the number of contributions eligible for the credit.
Who Qualifies?
Not everyone can qualify for the Saver’s Credit. In order to be eligible, the following circumstances must apply:
- You must be at least 18 years old
- You can't be a full-time student
- You can't be claimed as a dependent on another person’s tax return
The percentage you can claim depends on your adjusted gross income (AGI), amounting to 50%, 20%, or 10% of your retirement plan or IRA contributions for the year.
What is the 2022 Saver's Credit?
Bottom Line
Individuals or households with low to medium incomes will benefit the most from this tax credit. If you are considering taking advantage of the Saver’s Credit, you’ll need to file IRS Form 8880, "Credit for Qualified Retirement Savings Contributions" when you file your tax return.
Be sure to CONTACT US to speak to your financial advisor about including the Saver’s Tax Credit into your retirement strategy.
SOURCES:
https://www.thebalance.com/retirement-saver-credit-4125920
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
https://shiftprocessing.com/american-debt/