What is the Saver’s Credit?
Editor’s Note: This post discusses the Saver’s Credit, a special tax break to low- and moderate-income American taxpayers saving for retirement. Remember: You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit.
The Retirement Savings Contributions Credit or “Saver’s Credit” allows you to save money for your retirement, while also offering a tax credit, thus reducing – or in some cases even eliminating – your overall tax amount owed. It is a non-refundable credit, meaning it can reduce the tax you owe to zero, but it can’t provide you with a tax refund. You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit. To help determine eligibility, use the help of a tax professional at H&R Block.
Many people don’t take advantage of the credit simply because they don’t know anything about it. In fact, a recent survey conducted by Transamerica Center for Retirement Studies revealed just one quarter of Americans with an annual household income of less than $50,000 are aware of the credit.
Save for Retirement Through the Saver’s Credit
This credit offers an incentive to build a nest egg you can use upon retirement. With the Saver’s Credit, you can offset part of the first $2,000 you contribute to your retirement plan ($4,000 if you file jointly with your spouse) through:
- 401(k) plans
- Traditional or Roth IRAs
- SIMPLE plans
- SEP plans
- 403(b) annuities
- 457 annuities
- 501(c)(18) plans
- Governmental 457(b) plans
Rollover retirement contributions are not eligible.
What Credits Can You Get?
The maximum credit is $1,000 for single filers or $2,000 for married couples. The credit you obtain may be less because of your deductions and other credits claimed. However, the amount of the eligible credit begins to be reduced as your income increases. The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions depending on your adjusted gross income, or AGI.
Who is Eligible?
Eligibility hinges on a few factors: your age, dependency, education status, and income.
- Age: You must be at least 18 years old by the end of the tax year.
- Dependent Status: You can’t claim the credit if you’re claimed as a dependent on another person’s tax return.
- Education Status: You can’t claim the credit if you are a full-time student.
- Income: Your modified adjusted gross income (AGI), based on your filing status, isn’t more than:
Married filing jointly – $61,500
Married filing separately – $30,750
Single – $30,750
Head of household – $46,125
Qualifying widow(er) – $30,750
How Can You Start a Retirement Plan?
Did you know H&R Block’s banking partner BofI Federal Bank, offers traditional and Roth IRAs? You can choose from a traditional or Roth IRA savings account and make prior-or current-year contributions to your retirement account.
Here are some common questions asked about the IRA from BofI:
How Do I Apply?
You can apply for an IRA in a participating H&R Block location. (To find an office near you, head here.
How Much Can I Contribute?
Individuals can contribute up to $5,500 ($6,500 if 50 or older) into a traditional or Roth IRA. The minimum initial deposit is $250 for the BofI Federal Bank IRA. View this website for list of current rates, go here.
How to Claim the Saver’s Credit
As tax season approaches, you’ll need to know where to go to take advantage of the Saver’s Credit. In order to claim the Saver’s Credit, you’ll need to complete IRS Form 8880, and attach it to your 1040, 1040A or 1040NR when you file your tax return. You can’t file Form 8880 using a 1040EZ, so it’s important to consult an expert to make sure you are eligible for the credit.
To help determine eligibility, use the help of a tax professional at H&R Block. Start the process here.
This IRA is a product of BofI Federal Bank, Member FDIC, and is not a product of H&R Block. IRA assets will be held in an account at BofI Federal Bank. The account agreement and applicable tax law govern eligibility for, contributions to and distributions from the IRA account. Applicable tax law is complex, and the financial consequences of non-compliance may be significant. The contents of this disclosure are not intended to be, and are not, legal or tax advice. You should consult a financial advisor familiar with your specific circumstances regarding your particular retirement planning needs. Terms and conditions apply; see BofI website for more details.