You probably know about the benefits of tax-deferred investment accounts. But did you know that there is a special IRS provision that potentially allows you to save money just for being a retirement saver? The so-called "saver's credit," formally known as the Retirement Savings Contributions Credit, permits certain low- to middle-income workers to claim a tax credit for making eligible contributions to an IRA or most qualified workplace retirement plans.
But this tax break is currently going largely untapped. According to a study by the nonprofit Transamerica Center for Retirement Studies, only about a third of U.S. workers are aware of the saver's credit.1
The IRS Says …2
Here is a rundown on the basic rules governing the credit.
In order to claim the credit, the IRS requires that you:
• Are at least 18 years old;
• Are not a full-time student; AND
• Cannot be claimed as a dependent on another person's tax return.
Retirement plans eligible for the credit include:
• Traditional or Roth IRAs
• 401(k)s and 403(b)s
• SIMPLE IRAs
• 501(c)(18) or governmental 457(b) plans
• Voluntary after-tax employee contributions to qualified retirement and 403(b) plans.
The Amount You Can Claim
According to the IRS, "The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A)."
Here's a breakdown for tax year 2016:
*Single, married filing separately, or qualifying widow(er).
To learn more about the saver's credit visit the IRS website. For help shaping up your retirement planning and/or tax planning strategy contact your financial advisor.
1. Transamerica Center for Retirement Studies, "Retirement Throughout the Ages: Expectations and Preparations of American Workers," May 2015.
2. IRS, "Retirement Savings Contributions Credit," updated February 22, 2016.
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or email@example.com.
The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.