Hey everyone, it’s Bette Hochberger CPA, CGMA here, and today, I’ll be discussing the fantastic tax benefit that can put a little extra money back in your pocket: the Savers Credit. If you’ve been saving for retirement, this credit is your friendly reward for being financially responsible. So, let’s go ahead and break it down!

What is the Savers Credit?

The Savers Credit, also known as the Retirement Savings Contributions Credit, is a tax credit offered by the IRS to encourage low- to moderate-income individuals to save for retirement. It’s like a bonus for contributing to your retirement accounts! If you qualify, you can receive a credit of up to 50% of your contributions, which can significantly reduce your tax bill.

Who Can Claim the Savers Credit?

To qualify for the Savers Credit, you must meet certain criteria. Here’s a quick rundown:

Income Limits

Your adjusted gross income (AGI) must fall below a specific threshold. For the tax year 2024:

  •  $38,000 for single filers
  • $57,000 for heads of household
  • $76,000 for married couples filing jointly

Age Requirement

You must be at least 18 years old.

Retirement Accounts

You need to contribute to a qualifying retirement plan, such as a 401(k), 403(b), or an IRA.

Not a Full-Time Student

You cannot be enrolled as a full-time student for at least five months during the year.

How Much Can You Save?

The Savers Credit can be worth up to 50% of your contributions, but the exact percentage depends on your income level. Here’s how it breaks down:

– 50% Credit: If your income is at the lower end of the scale.
– 20% Credit: For those with a slightly higher income.
– 10% Credit: For those who just make it into the higher income bracket.

The maximum annual contribution that can qualify for the credit is $2,000 (or $4,000 for married couples). So, if you qualify for the full 50% credit, you could get a credit of up to $1,000 (or $2,000 for married couples).

How to Claim the Savers Credit

Ready to cash in on this credit? Here’s a step-by-step guide:

1. Contribute to Your Retirement Account: Make sure you have contributed to a qualifying retirement account within the tax year.

2. Fill Out IRS Form 8880: This form is where you’ll calculate your Savers Credit.

3. Include it in Your Tax Return: Once you’ve completed Form 8880, include it with your tax return.

4. Enjoy Your Credit: If you’re eligible, you’ll see the credit applied to your tax bill, which can mean a nice little boost to your tax refund!

Why Should You Care?

Taking advantage of the Savers Credit not only helps you save for your future but also rewards you for being proactive about your financial well-being. Plus, it’s a great way to reduce your tax burden, leaving you with more money to invest in your dreams—whether that’s buying a house, traveling the world, or simply enjoying life a little more.

The Savers Credit is a valuable tool for anyone looking to support their retirement savings while also reducing their tax liability. It’s an incentive that pays off in more ways than one! So, if you’re eligible, don’t leave money on the table. Get informed, contribute to your retirement accounts, and reap the rewards. Schedule a meeting with us to start your tax planning today!

As always, stay safe, and I’ll see you next time.