The Internal Revenue Service provided Retirement Savings Contributions Credit, also known as the Saver's Credit, could help those with a smaller income to save for retirement.
It is intended to be a boost for low to moderate income workers. The credit provides an additional 10% to 50% (depending on your income) up to a total of $2000 for any retirement savings contributions you may make during the year. The money is received as a tax credit and can be applied for annually.
Who can get 50% added to their contributions?
Individuals earning up to $19,000 annually, heads of household earning up to $28,500, and married couples with a combined income of up to $38,000.
What are the qualifying income levels?
Regarding the maximum income levels allowed to be eligible for one of the reduced percentages (10 or 20%), individuals can make up to $31,500, heads of household can make $47,250, and those with a tax status of married filing jointly can earn up to $63,000.
The Retirement Savings Contributions Credit has become a popular option for anyone over 18, students and dependents excluded. More than 8.1 million taxpayers benefited from the option last year, so don’t worry that you might be the only one taking advantage of the tax credit. It’s fairly straightforward to apply for, and the IRS instructions are easy to follow (or they are as easy as any IRS instructions can be to follow).
Over at the Motley Fool, they remind us that the Retirement Savings Contributions Credit is not the only way to get the IRS to lower your tax bill. If you contribute to a 401(k) on a pre-tax basis, you get an additional deduction at tax time. When it comes to Roth IRA holders, you have the opportunity to take tax-free distributions during retirement. Both account types have the opportunity to skip paying taxes on income and gains.
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