Individuals making less than $36,500 annually can save up to $1,000 in taxes if they contribute toward their retirement.
The Internal Revenue Service (IRS) issued a reminder to low- and moderate-income taxpayers that they can save more in taxes next year by taking advantage of a “special” tax credit.
The “special” tax credit is the Retirement Savings Contributions Credit, also known as Saver’s Credit. Qualified taxpayers can use it to offset a portion of voluntary contributions they make to 401(k) plans, IRAs, and other retirement plans, the IRS said in a Nov. 22 press release. To qualify, a taxpayer’s adjusted gross annual income should be below $36,500 if filing individually, $73,000 for married couples filing jointly, and $54,750 for heads of households.
Individual taxpayers can get a credit of 10 percent, 20 percent, or 50 percent of their contributions depending on income level, subject to a maximum contribution limit of $2,000.
As such, the maximum Saver’s Credit for an individual will be 50 percent of $2,000 or $1,000. For married couples filing jointly, the contribution limit is set at $4,000, with the maximum Saver’s Credit at $2,000.
Taxpayers with IRAs have time until April 15, 2024—the tax filing due date—to add money to their accounts and benefit from Saver’s Credit. Taxpayers can also open a new IRA account to take advantage of the credit.
Individuals with workplace retirement accounts like 401(k), 403(b), governmental 457 plan, and Thrift Savings Plan (TSP) have time until Dec. 31 to contribute to such accounts and qualify for the credit.
In addition to income limits, taxpayers should be above 18 and must not claim the credit as a dependent or student in order to be eligible for Saver’s Credit.
The credit also applies to eligible disabled people who are designated beneficiaries of Achieving a Better Life Experience (ABLE) accounts and make contributions. ABLE accounts are tax-advantaged savings programs for disabled people.
Saver’s Credit “can increase a taxpayer’s refund or reduce the tax owed but is affected by other deductions and credits. Distributions from a retirement plan or ABLE account reduce the contribution amount used to figure the credit,” the IRS said.
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