Although saving for retirement isn’t always easy with a low income, there are benefits to help ease the burden for those who can swing the yearly contributions. Eligible savers can enjoy the reward of a Savers Credit to reduce the amount they owe on their taxes next year. Most low-income savers don’t take advantage of this benefit either because they don’t know it exists or don’t know they qualify. Take a look at the eligibility requirements and income limit restrictions that are currently in place for the Retirement Savings Contributions Credit, or Saver’s Credit, below.
- Only workers 18-years-old and older may use the Savers Credit. Anyone can contribute to an IRA at any age as long as they have taxable income, but young savers will still need to wait until at least 18 to use the tax benefit.
- Student status. Even people who are 18-years-old will still disqualify if they are full-time students.
- Savers will also be disqualified if they are listed as a dependant on someone else’s tax form.
- Retirement accounts. To use the Savers Credit, workers must contribute to a qualified retirement plan, which include any of the following: IRA, Roth IRA, SIMPLE IRA, SEP IRA, 401(k), 403(b), 501(c)(18), and/or 457(b).
Income Restrictions and Credit Percentages
The percentage of your contribution returned as credit is either set at 10%, 20%, or 50% and is tiered base on income. The maximum credit you can qualify for is $2,000 for a single person and $4,000 for a married couple filing jointly. It is important to note that the Savers Credit is non-refundable, meaning that the credited amount can only be used to lower an owed tax balance. If you don’t owe on your taxes or the amount credited is more than what you owe, you will not be refunded the extra money. Rollover contributions from one plan to another also don’t qualify as eligible contributions for the Savers Credit. Refer to the categories below to see if you qualify. All numbers are based on the limits for the 2017 year.
- Married Filing Jointly. For this group, the maximum return of 50% of their retirement contribution is activated at an adjusted gross income of no more than $37,000. Workers earning between $37,001 and $40,000 will have 20% of their contribution returned as credit. Workers earning between $40,001 and $62,000 will only have 10% of their contribution returned as a credit. AGI over $62,000 disqualifies this group for the Savers Credit.
- Head of Household. To qualify for a 50% return as credit, savers who are heads of household must earn no more than $27,750. For a 20% return, this group must earn between $27,751 and $30,000. Workers earning between $30,001 and $46,500 qualify for a 10% return, and more than $46,500 disqualifies this group from the Savers Credit altogether.
- All Other Filers. This group may include single filers, qualified widowers, or married filing separately. For a 50% return, workers must earn no more than $18,500. For a 20% return, the income level must be between $18,501 and $20,000. For a 10% return, earners can make between $20,001 and $31,000. More than $31,000 disqualifies this group from the Savers Credit.