Question: My son works full-time but his employer doesn’t offer a 401(k). Is he eligible for the retirement saver’s tax credit?
Answer: He could be if he contributes to an IRA or other retirement-savings plan. To be eligible for the credit, he must be 18 or older, not a full-time student and not claimed as a dependent on another person’s return. He also must meet the income criteria. In 2018, single filers can only qualify for the saver’s credit if their adjusted gross income is $31,500 or less. The income limit is $47,250 for people filing as head of household and $63,000 for joint filers.
The size of the credit is based on the amount of money you contribute for the year to a retirement-savings plan, such as a traditional or Roth IRA, 401(k), 403(b) or 457 plan. The credit is worth 10%, 20% or 50% of the first $2,000 contributed for the year—with a maximum credit of $1,000 per person ($2,000 for joint filers).
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The top 50% credit can be claimed if AGI in 2018 is up to $19,000 for single filers, $28,500 for heads of household or $38,000 for married joint filers. The credit is worth 20% of your contribution if income is $19,001 to $20,500 for singles, $28,501 to $30,750 for heads of household, and $38,001 to $41,000 for joint filers. You can claim a credit worth 10% of your contribution if you’re single with income between $20,501 to $31,500, or a head of household with income of $30,751 to $47,250 or married filing jointly with income of $41,001 to $63,000. You can’t claim the credit if you earn more than that.
The income cut-offs are slightly higher for 2019. See the IRS’s Saver’s Credit factsheet for the income limits for each year from 2015 to 2019. (If you qualified for the credit in the past three years and didn’t claim it, you can file an amended return and get a refund. (See 10 Money-Smart Reasons to Amend Your Tax Return for more information.)
If your son contributes to an eligible retirement-savings plan and his income is below the cut-offs, he should submit Form 8880 to claim the credit when he files his 2018 income-tax return.
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