Almost all studies on savings rates tend to show that Americans are terrible at saving. Over 40 percent of all households have nothing saved fore retirement. Many of this number are actually households that include at least one person over the age of 50. With so few people saving adequately, the Internal Revenue Service (IRS) and the United States government have figured out a way to make saving a bit easier. If you are not already saving money, you should start because it could also lower your tax bill.
What Is the Saver's Tax Credit?
The Saver's tax credit is for eligible taxpayers who make a salary-deferral contribution to an employer-sponsored 401(k), SIMPLE, 403(b), SEP or governmental 457 plan. It…show more content… This non-refundable tax credit is for 10 to 50 percent of your contribution to one of the previously mentioned retirement plans. The exact percentage is based on your income, and it is limited to a maximum of $1,000 per individual. If you are a married couple, you could get a credit of up to $2,000. It is non-refundable though, so the tax credit can only work for up to the amount you actually paid in taxes or $1,000. If you were only going to owe $900 in taxes, $900 is the maximum that the credit be for
In 2017, the following chart covers the amount that your adjusted gross income can be to achieve each tax credit…show more content… If you make more money, you get a lower percentage of your savings back with the saver's credit. Likewise, the saver's credit stops at a certain level of income. If you do earn less money, you can access the increased retirement incentives.
Are You Eligible for the Saver's Credit?
Toe be eligible for the saver's credit, you should be at least 18 years old by the end of the tax year. If you are a dependent on someone else's return or are a full-time student, you cannot use the tax return.
In addition, you should keep in mind that distributions from your retirement plan during a “testing period” could result in making you ineligible for the credit. The testing period is the two periods before the year that you claim the tax credit. Basically, if you are claiming a saver's credit in 2017, getting a distribution in tax years 2015 and 2016 could affect your ability to claim the saver's credit.
The testing period is fairly reasonable however. If the entire goal of the saver's credit is to get people to save, then it is not a good credit to hand out if someone withdrew money from their savings recently—and this type of rule also prevents abuses of the
