Saver’s credit, which is linked to the retirement savings contribution, is a US federal tax credit that people get by simply contributing to their retirement. The credit is often incorporated as part of your tax returns. This is more beneficial than getting a tax deduction. It means that you get a full dollar-for-dollar discount on your overall tax bill.
For example, let’s say you get a saver’s credit of around $1,000. You will in turn also get back $1,000 on your overall tax bill. The main goal for this program is to simply help folks saving for retirement to get some money back. In a way, it is designed to incentivize people to save for retirement as much as they can. So, who can claim this tax credit?
Well, you can claim your saver's credit regardless of your filing status. To be eligible for this program, there are three main requirements that you must follow.
First, you must be at least 18 years old. This means that you cannot be dependent on someone else's taxes. There is also an income threshold here. To qualify for saver’s credit, a person must be earning less than $60,000 for joint filers and $49,500 for heads of households.
But in case you are filing under a different category than these two, then you are required to have an annual gross income of less than $33,000. This is of course a low-income level and it is set that way by purpose. The goal of the saver’s credit is to encourage young people to start saving for retirement early. Typically, most younger adults who are just getting started with their careers will rarely earn more money.
Also, people who want to qualify for the program must have contributed to an eligible retirement account. These accounts include the traditional or ROTH IRA, the 401 (k), 403 (b) of the state-led 457 (b). Other plans covered under the program include SARSEP or SIMPLE plan, Thrift Savings Plan, the 501 (c) (18) (D), and the ABLE account.
But how much can you get in saver's credit? The amount is typically calculated as a percentage of the retirement contribution. It can be worth 50%, 20%, or even 10% of the contributions made towards retirement. It is also important to note that you can only receive the credit on the first $2,000 for each individual. For a married couple, it’s $4,000.
So, this would mean that for a person, the maximum amount of saver's credit you can get would be 50% of $2,000. As for couples, the maximum amount you can get is $2,000, which is 50% of the $4,000 covered under the program. This can be a very good way of reducing your tax bill each year while at the same time securing your future with the required contributions.