Saving for retirement takes effort and sacrifice, especially since most people will need to invest hundreds of thousands or even millions of dollars to provide enough income to supplement Social Security.
Unfortunately, many workers miss the opportunity to make their savings efforts easier. This is because they are unaware of the significant opportunity to earn free money to invest in their retirement.
The Transamerica Center for Retirement Studies recently conducted a study and found that only 46% of workers are aware of a tax credit called Savers Credit. This includes 50% of employees, 41% of the self-employed, and 24% of the unemployed of working age.
What is the Saver's Credit?
Not knowing about saver's credit is a big deal because, for those who qualify, it's one of the most valuable sources of free retirement funds. Essentially, it offers a tax credit of up to 50% of the amount you invest in eligible retirement accounts. However, there is a credit limit. You can claim a credit of up to $2,000 in contributions to your retirement account if you are single or up to $4,000 if you are a married spouse. That implies that the credit is worth a maximum of $1,000 for single filers or $2,000 for married joint filers who contribute the most to their retirement accounts.
Am I eligible for the Saver's Credit?
The maximum adjusted gross income (AGI) for individual filers in 2021 and 2022 is $33,000 and $34,000, respectively. The maximum AGI for the head of household is $49,500 in 2021 and $51,000 in 2022. The maximum AGI for couples filing jointly is $66,000 in 2021 and $68,000 in 2022.
You must be at least 18 years old on January 1 and not be a full-time student or dependent on someone else's tax return. If you want to know if you are eligible for the saver's credit, consult a tax professional.
How to apply for the Saver's Credit
You must have contributed to a similar employer-sponsored 401(k), 403(b), or ABLE account in 2021 to be eligible for the saver's credit.
Traditional and Roth IRA contributions are eligible, and you have until April 18, 2023, to make an IRA contribution for the 2022 tax year. The credit does not apply to rollover contributions.
Let the IRS Free File program help you file your federal taxes. Taxpayers with an AGI (adjusted gross income) of $73,000 or less can use the program's eight partners' online tax preparation tools free of charge.
Don't forget that this valuable tax credit can help you reduce your federal tax or increase your refund. Check if you qualify, especially if you lost your job due to the Covid-19 pandemic in 2021.
Don't leave money on the table.
More than half of Americans who don't know about this credit could be missing out on great help saving for retirement. If you were one of them, now you know about the free money opportunity and can start planning from now to contribute enough to your retirement accounts to earn the full amount offered by Uncle Sam.
FOR MORE INFORMATION ON HOW JIM McCLAFLIN, EA, NTPI FELLOW, CTRC CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLlICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
Jim McClaflin, EA, NTPI Fellow, CTRC