Saver’s Credit Makes Saving Easier for Lower Earners

Mar 20, 2014 1:51:05 PM / by Dave Boelman

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Tax Tip: If you are struggling to put away money for retirement, the Saver’s Credit can help.

If you are a low- to moderate-income earner, the Saver’s Credit provides a wonderful opportunity to reap additional benefits from putting money into a retirement plan.

What is the Saver’s Credit?

The Saver’s Credit is a federal tax credit available to low- to moderate- income taxpayers who contribute to an IRA or qualified employer-sponsored retirement plan.  The maximum credit available is $1,000 for an individual or $2,000 for a married couple filing jointly.

 

How can it help me?

Because it is a credit, the Saver’s Credit is even more valuable than a tax deduction.  Whereas a deduction will reduce the amount of your income that will be subject to tax, a credit directly reduces the amount of your tax obligation.  For example, at a tax rate of 25%, a $1,000 deduction could save you $250, but a $1,000 credit would reduce your tax burden by $1,000.  The Saver’s Credit is a non-refundable credit, however, so if your tax liability reaches zero, the credit will not reduce it any further to increase your refund.

If you contribute to a 401(k) or traditional IRA, you will get two tax breaks for the year.  You can claim the Saver’s Credit in addition to deducting contributions from your taxable income.  Roth IRA contributions, however, are not tax-deductible, so they can qualify only for the credit.

 

Am I eligible?

In order to qualify for the Saver’s Credit, you must be at least 18 years old, not a full-time student, and not claimed as a dependent on someone else’s return.  If you meet those criteria, the whether you can claim the credit and what proportion of your contribution you can claim depends on your filing status and adjusted gross income.  The 2014 limits are listed below.  Contributions up to $2,000 per person ($4,000 for a married couple) are included in the calculation.

Amount of Credit

Married Filing Jointly

Head of Household

Single & Others

50%

≤ $36,000

≤ $27,000

≤ $18,000

20%

$36,001 - $39,000

$27,001 - $29,250

$18,001 - $19,500

10%

$39,001 - $60,000

$29,251 - $45,000

$19,501 - $30,000

0%

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I wish I’d known about this last year!

If you qualify, you can still make contributions for tax year 2013 up until the April 15, 2014 filing deadline.  Because the credit is adjusted for inflation, the 2013 limits are a bit lower: $59,000 for a married couple filing jointly, $44,250 for heads of household, and $29,500 for single filers.

 

To get the most out of your savings, it is helpful to get the advice of a professional with an extensive understanding of both tax and financial planning. Integrating these aspects of your finances allows you to get the most out of your hard-earned money.  Contact Boelman Shaw Capital Partners to find out how we can integrate your tax and retirement planning.

 

Material discussed herein is meant for general illustration and/or informational purposes only.  Because individual situations will vary, the information shared here should be used in conjunction with individual professional advice.

Topics: Tax Services

Written by Dave Boelman