Available to 401(k)s and IRAs, the Saver’s Credit can be worth up to $2,000 for married couples who file a joint tax return. For single filers, the credit can be worth up to $1,000.
So how does it work? Who qualifies and how much will they get?
First, this tax credit is in addition to the tax benefits your retirement plan already receives. Think about it as an incentive to open a tax-free or tax-deferred account.
Eligibility for the credit depends on whether you’re single or married and how much money you make. Since the credit requirements change every year, let’s look at 2013’s numbers as a pretty good indicator for what 2014 requirements will be. You may be eligible if you are:
• Married filing separately or a single taxpayer with income up to $29,500
• Head of household with income up to $44,250
• Married filing jointly with income up to $59,000
Other rules apply for eligibility: you must be at least 18, you must have not been a full-time student the previous year and you can’t be claimed as a dependent on anyone else’s tax return.
Logically, another rule is that you must have contributed to a 401(k) by the end of the previous year in order to receive the credit, and to an IRA by the filing date of the current year (April 15).
To begin filing for the credit, access IRS Form 8880, which is the Credit for Qualified Retirement Savings Contributions. Tax software (or a tax professional) will do this for you if you file your tax return online or with a tax service.
Keep in mind that the Saver’s Credit is just one benefit of retirement accounts. You can deduct money from certain accounts that you contribute to and the money you contribute to some accounts grows tax-deferred or tax-free. For more information on how to maximize your retirement account, call us at New Direction IRA or visit www.ndira.com.
