Getting Paid to Save for Retirement With the Saver's Credit

by Michael on Feb 19, 2014

Photo of a Save Money Button

If you’re in a lower tax bracket and have been looking for a good reason to get off your butt and start saving for retirement, here it is…

In short, you may be eligible for a tax credit that offsets as much as 50% of your traditional or Roth IRA, 401(k), 403(b), 457(b), SIMPLE IRA or SARSEP contribution.

And while it’s too late to make contributions to an employer-sponsored account like a 401(k) or 403(b) for last year, you have until the income tax filing deadline (April 15th) to fund a traditional or Roth IRA for 2013.

Aside from meeting the income requirements, you must be 18 or older, not a full-time student, and not claimed as a dependent on someone else’s tax return. Also, the credit is capped at $2k/individual ($4k for married filing jointly).

For the tax year 2013, the income limits and credit rates can be found below.

Credit Rate Married (Joint) Head of Household All Other Filers
50% of contribution AGI &#8804 $35,500 AGI &#8804 $26,625 AGI &#8804 $17,750
20% of contribution $35,501-$38,500 $26,626-$28,875 $17,751-$19,250
10% of contribution $38,501-$59,000 $28,876-$44,250 $19,251-$29,500
0% of contribution AGI > $59,000 AGI > $44,250 AGI > $29,500

And here are the income limits and credit rates for tax year 2014:

Credit Rate Married (Joint) Head of Household All Other Filers
50% of contribution AGI &#8804 $36,000 AGI &#8804 $27,000 AGI &#8804 $18,000
20% of contribution $36,001-$39,000 $27,001-$29,250 $18,001-$19,500
10% of contribution $39,001-$60,000 $29,251-$45,000 $19,501-$30,000
0% of contribution AGI > $60,000 AGI > $45,000 AGI > $30,000

So, for 2013, let’s say that an individual with an AGI of $25k puts $2k into an IRA. In that case, they would be eligible for a $1k tax credit (50% of contribution), making the out-of-pocket cost of that contribution just $1k.

The credit is calculated using IRS Form 8880, though just about any tax prep software should do the job for you.


Comments on this entry are closed.

Previous post:

Next post: