Sadly, one of the least known tax credits is a real boon for low-income savers trying to set some money aside for retirement. It’s called the Savers Tax Credit or, more formally, as the Retirement Savings Contributions Credit. Take advantage of it if you qualify.
Certified financial planner Eric Toya explains the basics of the credit on the website of the Financial Planning Association.
Here are the eligibility guidelines:
[Y]you must be 18 or older, not a full time student and cannot be claimed as a dependent by another person. Based on your filing status, here are the income limitations:
Single, married filing separately, or qualifying widow(er), with income up to $27,750
Head of Household with income up to $41,625
Married Filing Jointly, with incomes up to $55,500
If you made eligible contributions to a qualified retirement plan and meet the income limitations, you may be able to take a tax credit of up to $1,000, or $2,000 if filing jointly. The credit is a percentage of your retirement plan contribution up to a contribution of $2,000 for individuals, or $4,000 combined for married couples filing jointly. The maximum credit amount is 50 percent of your retirement plan contribution.
The article illustrates the credit with an example of a married couple making a combined income of $33,500. The IRS has an explanation of the credit here.
I wish the federal government would get the word out about the credit better. We all need help saving, especially low-income families.
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