If you’re not sure what the “saver’s credit” is, you’re not alone. Members of the Senate Finance Committee believe many people who are eligible to claim the credit are unaware of its existence.
Here’s what you need to know:
- The saver’s credit, also called the “retirement savings contributions credit,” is a tax break designed to encourage you to make contributions to your traditional and Roth IRAs and certain other qualified retirement plans — including your 401(k).
- You apply the credit directly to your federal income tax liability, including the alternative minimum tax. The credit is nonrefundable, meaning you can use it to reduce your tax liability to zero, but no lower.
- The maximum credit is $1,000 ($2,000 if you’re married filing a joint return).
- You’re eligible if you’re not a full-time student or a dependent, are over age 18, and your 2012 adjusted gross income is less than the phase-out amount of $28,750 ($57,500 for married filing jointly). For 2013, those phase-out amounts increase to $29,500 for singles and $59,000 for joint filers.
Here’s why it’s a good deal: If you’re eligible, you can take the credit and still deduct your traditional IRA contribution, which gives you the opportunity for double savings.
Additional rules might apply. For instance, the amount of the credit may be reduced by certain distributions from your retirement plans. To learn how you can obtain the maximum benefit, please give us a call.