Blog Post

Saver’s Credit

Tax Credit for IRAs and Retirement Plans (Saver’s Credit)

What is it?

The Economic Growth and Tax Relief Reconciliation Act of     2001 made significant changes to IRAs and retirement plans. One provision of     the act allows some low- and middle-income taxpayers to claim a partial,     nonrefundable income tax credit (the “saver’s credit”) for contributing to     certain tax-deferred retirement savings vehicles. The credit can be applied     against the taxpayer’s regular income tax liability (or minimum tax liability,     if paying under the alternative minimum tax system) and is in addition to any     income tax deduction the taxpayer receives for making the contribution. The     purpose of this provision is to encourage retirement savings among those who,     typically, can least afford to save.

What retirement savings vehicles are eligible for the     tax credit?

The tax credit is available for elective contributions     made to traditional     IRAs, Roth     IRAs, and the following      employer-sponsored retirement     plans: Section     401(k) plans, Section 403(b) annuities,      Section 457(b)     plans, SIMPLE     plans, and SEP     plans. Voluntary after-tax employee contributions made to a     qualified retirement plan also qualify for the credit.

Who is eligible for the tax credit?

Not everyone who contributes to the retirement savings     vehicles mentioned previously is eligible for the tax credit. To claim the     credit, you must be at least 18 years old and not a full-time student or     claimed as a dependent on another taxpayer’s income tax return. In addition,     there are income requirements that must be met. If you and your spouse file a      joint income tax     return, you can claim the credit for 2019 only if your combined     adjusted gross income (AGI) for the year is $64,000 or less. If you file as      head of     household, you can claim the credit only if your AGI is     $48,000 or less. Finally, if you file as an      unmarried     taxpayer or married filing separately, you can claim the credit     only if your AGI is $32,000 or less.

How much is the tax credit?

The maximum annual contribution eligible for the tax     credit is $2,000, and the maximum credit rate is 50 percent of the amount     contributed. This means that the maximum possible credit that a taxpayer could     receive in one year is $1,000. However, not everyone who qualifies for the     credit will be able to claim the full credit. The specific amount of your     credit (if any) in any year will depend on three factors: your AGI for the     year, your income tax filing status for the year, and the amount of your IRA or     retirement plan contribution for the year. The following tables (for 2018 and     2019, respectively) provide the credit rates based on AGI and filing status:


Joint FilersHeads of HouseholdSingle FilersCredit Rate
$0-$38,000$0-$28,500$0-$19,00050% of contribution (up to $2,000)
Over $63,000Over $47,250Over $31,5000%


Joint FilersHeads of HouseholdSingle FilersCredit Rate
$0-$38,500$0-$28,875$0-$19,25050% of contribution (up to $2,000)
Over $64,000Over $48,000Over $32,0000%

Finally, be aware that the amount of any contribution     eligible for the credit may be reduced by any taxable distributions that you     and your spouse receive from any of the retirement savings vehicles mentioned     previously (or from any other qualified retirement plan). This reduction     applies to distributions received during the same tax year that the credit is     claimed, the two tax years prior to the tax year that the credit is claimed,     and during the period after the end of the tax year and prior to the due date     for filing your tax return for the year. In the case of a Roth IRA, this rule     applies to any distributions received, whether taxable or nontaxable.


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