Believe it or not, the government will pay you to save.
Thats an average credit of about $186 per return.
Keep reading to learn who is eligible for the Savers Credit and how it works.
If you earn too much to qualify for the Saver’s Credit, you can still receive a tax deduction by contributing to atraditional IRA.
What Is the Savers Credit?
The Savers Credit is a way to put money back in your pocket when you save for retirement.
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How Do You Qualify for the Savers Credit?
First, youll need to meet some basic requirements.
The Internal Revenue Service setsmaximum adjusted gross income capsfor the retirement savings contribution credit each year.
Your income determines the percentage of your retirement savings that will be credited to your tax bill.
You might be eligible for 50%, 20% or 10% of the maximum contribution amount.
How Do I Claim the Savers Credit?
Heres what eligible taxpayers need to do to take advantage of the Savers Credit.
First, youll need to open a retirement account if you dont have one already.
it’s possible for you to open one with any brokerage firm orrobo-advisor.
Or, you’ve got the option to start contributing money to your workplace 401(k).
Contributions to the following retirement accounts qualify for the Savers Credit:
Next, make your deposit.
Pretty cool, huh?
Lastly, you oughta fileForm 8880: Credit for Qualified Retirement Savings Contributionswith the IRS.
On the scale of great tax breaks, tax credits are the best.
While deductions merely lower your taxable income, a tax credit reduces your actual tax bill dollar for dollar.
Lets say you do your taxes and discover you owe $1,000.
One potential drawback about the Savers Credit is its nonrefundable.
Usually that means it can only be used to lower your tax bill.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
She focuses on retirement, investing, taxes and life insurance.
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…
