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Sunday September 15, 2019

Savvy Living

Savvy Senior

The Tax Credit That Lets You Double-Dip on Retirement Savings

What can you tell me about the retirement saver's tax credit? At age 60, I am looking for ways to boost my retirement savings beyond my 401(k) plan and have heard this may be a smart way to do it. How can I find out if I am eligible for this credit?

If your income is low to moderate and you participate in your employer-sponsored retirement plan or an IRA, the "Saver's Credit" (also known as the Retirement Savings Contribution Credit) is a frequently overlooked tool that can help boost your retirement savings even more. Here is how it works.

If you contribute to a retirement-savings account like a traditional or Roth IRA, 401(k), 403(b), 457, federal employees' Thrift Savings Plan, Simplified Employee Pension or SIMPLE plan, the Retirement Savings Contribution Credit will allow you to claim 10%, 20% or 50% of your contribution up to $2,000 per year (or $4,000 for married couples). This valuable tax credit can be claimed in addition to the tax deduction you receive for contributing to your traditional retirement accounts.

To qualify, you must be at least 18 years old and cannot be a full-time student or claimed as a dependent on someone else's tax return. In addition, your adjusted gross income (AGI) in 2018 must have been $63,000 or less if you are a married couple filing jointly, $47,250 or less if filing as a head of household or $31,500 or less if you are a single filer. These income limits are adjusted annually to keep pace with inflation.

To be eligible for the 50% credit, your income must be below $19,000 if filing as a single taxpayer, $28,500 if filing as head of household or $38,000 if filing as a couple in 2018.

The 20% credit applies to single taxpayers with adjusted gross income between $19,001 and $20,500, head of household filers with income between $28,501 and $30,750 and for couples with earnings of $38,001 to $41,000.

The 10% credit applies to single taxpayers with adjusted gross income between $20,501 and $31,500, for head of household filers with income of $30,751 to $47,250 and for couples with earnings between $41,001 and $63,000.

Here is an example of how this works. Assume that you file your taxes as head of household and your AGI for 2018 is $30,000. Over the course of the year, you contribute $2,000 to your employer's 401(k) plan. Since your AGI puts you in the 20% credit bracket, and you have contributed the $2,000 maximum that can be considered for the credit, you are entitled to a $400 Saver's Credit on your 2018 tax return.

It is also worth mentioning that the Saver's Credit is in addition to any other tax benefits you receive for your retirement contributions. So, in the previous example, not only would you be entitled to a $400 credit, but you would also be able to exclude the $2,000 401(k) contribution from your taxable income. So, if you are in the 15% tax bracket, this translates to an additional $300 in savings, for a total tax savings of $700.

How to Claim

To claim the Saver's Credit, you will need to fill out Form 8880 (see IRS.gov/pub/irs-pdf/f8880.pdf) and attach it to your 1040, 1040A or 1040NR when you file your tax return. Do not use the 1040EZ Form.

If you think that you would have qualified for the credit in previous years but did not claim it, you can file an amended return as far back as 2015 and still receive the credits. A 2015 amended return is due by April 15, 2019. See IRS Form 1040X (IRS.gov/pub/irs-pdf/i1040x.pdf) for instructions on how to file an amended return.

For more information on the Saver's Credit, see IRS Publication 590-A "Contributions to Individual Retirement Arrangements" ( IRS.gov/pub/irs-pdf/p590a.pdf). You can also have these forms and publication mailed to you by calling 800-829-3676.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Published September 28, 2018
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