Retirement Savings Contributions Credit

Low-to middle income taxpayers may be able to claim a Retirement Savings Contributions Credit for contributions they make to eligible retirement accounts. These include traditional and Roth IRAs, employer-sponsored retirement plans, and ABLE (Achieving a Better Life Experience) accounts for which they are the designated beneficiary.

Retirement Savings Contributions Credit is a valuable tax break for low- and moderate-income workers who contribute to retirement accounts. The credit equals 10% to 50% of the amount you contribute to a qualifying retirement account, up to certain limits. The amount of the credit is based on your adjusted gross income, filing status, and age. Rollover contributions are not eligible for the credit. You can claim this credit by submitting IRS Form 8880, Credit for Qualified Retirement Savings Contributions.

As you save money for retirement, you may be eligible to claim the Retirement Savings Contributions Credit (Saver’s Credit), also known as the Credit for Qualified Retirement Savings Contributions. This nonrefundable tax credit, available to individuals and couples, is worth up to $500. You claim it by filing IRS Form 8880 with your return. Retirement Savings Contributions Credit can be valuable if your income is too low to qualify for a matched savings program, such as Individual Development Account. The amount of the credit is based on your adjusted gross income and your filing status. You can claim it for contributions to an IRA, including a Roth IRA; a traditional or SIMPLE IRA; a 401(k) or similar employer-sponsored plan; a 403(b), government 457, or SEP IRA; and an ABLE account, which is set up for people with disabilities. Rollovers from one account to another do not count.

How to Qualify for Retirement Savings Contributions Credit
Retirement Savings Contributions Credit 1

How to Qualify for Retirement Savings Contributions Credit?

To qualify for the saver’s credit, you must have adjusted gross income (AGI) under certain caps set by the government. In addition, you must be over 18 years old and not claimed as a dependent on someone else’s return. Lastly, you must have made qualifying contributions to an individual retirement account (IRA) or to an ABLE account for which you are the designated beneficiary.

To figure out how much you owe for the credit, you can use a tax-preparation software program or fill out IRS Form 8880, Credit for Qualified Savings Contributions, and submit it with your tax return. However, it is important to remember that the credit can only reduce your tax liability to zero and cannot provide you with a refund.

The saver’s credit is designed to encourage people to invest in their future. The credit can be used to invest in a wide range of investment vehicles, including mutual funds and ETFs. Many financial planners recommend that you consider ESG-focused funds, which support environmental, social, and governance issues. This can help you diversify your portfolio and reduce the risk of exposure to political events or economic volatility. You should speak with a qualified tax professional to learn more about whether this investment strategy is right for you.

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