Wha🐠t Is a Qualified Retirement Savings Contribution Credit?

The Qualified Retirement Savings Contribution Credit, often abbreviated as the "Saver's Credit," encourages low-income individuals to contribute to their qualified retirement plans by ultimately reducing their overall tax obligations. It is filed on the one-page IRS Form 8880, which is used to calculate saver's credits by individuals, heads of household, or married couples. 

Understanding the🐬 Qualified Retiremen𒐪t Savings Contribution Credit

The qualified retirement accounts eligible for saver's credit include 澳洲幸运5官方开奖结果体彩网:traditional IRAs, 澳洲幸运5官方开奖结果体彩网:Roth IRAs, 澳洲幸运5官方开奖结果体彩网:401(k) plans, 澳洲幸运5官方开奖结果体彩网:403(b) plans, and 澳洲幸运5官方开奖结果体彩网:457 plans. Taxpayers may take advantage of this credit even when claiming separate deductions for their IRA contributions. Furthermore, a taxpayer who is the beneficiary may also be entitled to receive this credit for contributions to Achieving a Better Life Experience (ABLE) savings accounts.

To take advantage of this credit, claimants must satisfy a host of eligibility requirements. First and foremost, they must be at least 18 years old and they cannot be claimed as dependents by other individuals. Eligible participants must also meet 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) limits.

As of 2023, the Saver's Credit is available to single taxpayers with maximum incomes of $36,500, heads of household with maximum incomes of $54,750, and married couples filing jointly with maximum incomes of $73,000. For 2024, these numbers are $38,250, $57,375, and $76,500, respectively. Although full-time students are not eligible for this credit, self-employed individuals may participate in this program.

Preparing Form 8880

Form 8880 must accompany 澳洲幸运5官方开奖结果体彩网:Form 1040, 澳洲幸运5官方开奖结果体彩网:Form 1040-SR, or 澳洲幸运5官方开奖结果体彩网:Form 1040-NR in your tax return. To complete the form, taxpayers must declare their AGIs, as well as the total amount of their contributions to a given qualified plan. Credits range between 10% and 50%, depending o🅰n the AGI. For IRA contributions, the maximum allowable credit is $2,000 for individuals and $4,000 for spouses filing jointly.

Consider the following breakdowns for tax🉐 filers as of 2023:

• Married taxpayers filing jointly may receive a credit worth 50% of their contributions to a qualifying plan or ABLE account if their combined AGI is $43,500 or less. Heads of households may receive a 50% credit if their AGIs are $32,625 or less. And single filers may receive the 50% credit if their AGIs are $21,750 or less.
• Married taxpayers filing jointly may receive a credit worth 20% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $43,501 and $47,500 in 2023. Heads of households may receive a 20% credit if their AGIs range between $32,626 and $35,625. And single filers may receive the 20% credit if their AGIs fall between $21,751 and $23,750.
• Married taxpayers filing jointly may receive a credit worth 10% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $47,501 and $73,000 in 2023. Heads of households may receive a 10% credit if their AGIs range between $35,626 and $54,750. And single filers may receive the 10% credit if their AGIs fall between $23,751 and $36,500.

Consi🐟der the folওlowing breakdowns for tax filers as of 2024:

• Married taxpayers filing jointly may receive a credit worth 50% of their contributions to a qualifying plan or ABLE account if their combined AGI is $46,000 or less. Heads of households may receive a 50% credit if their AGIs are $34,500 or less. And single filers may receive the 50% credit if their AGIs are $23,000 or less.
• Married taxpayers filing jointly may receive a credit worth 20% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $50,001 and $76,500 in 2024. Heads of households may receive a 20% credit if their AGIs range between $34,501 and $37,500. And single filers may receive the 20% credit if their AGIs fall between $23,001 and $25,000.
• Married taxpayers filing jointly may receive a credit worth 10% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $47,501 and $73,000 in 2023. Heads of households may receive a 10% credit if their AGIs range between $37,501 and $57,375. And single filers may receive the 10% credit if their AGIs fall between $25,001 and $38,250.

Given the aforementioned data, a single taxpayer with an income of $19,500 and IRA contributions totaling $2,000 may claim 50% of the $2,000, which calculates to $1,000. It is important to note that rollover contributions are not eligible. Furthermore, distributions from a qualified plan may reduce the amount claimed for the credit.

The Bottom Line

Providing tax benefits to low-income individuals through the Saver's Credit encourages retirement savings in a host of retirement plans, including 401(k)s and IRAs. Individuals must qualify based on income limits as well as other criteria and information must be filed on Form 8880.