Claiming the Saver’s Credit on Your Tax Return
Workers with modest incomes are rewarded with a tax credit of up to $1,000 for saving for retirement.
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Question: I’m about to start a new job that finally has a 401(k) and am trying to decide how much I can afford to contribute. Will my contributions make me eligible for the retirement saver’s tax credit, and how much will that be worth?
Answer:
If you contribute to a 401(k), traditional or Roth IRA, 403(b), 457 or other retirement plan, you may be eligible for the retirement saver’s tax credit. The credit can be worth $200 to $1,000 per person, depending on your income (couples earning more than $62,000 and single filers earning more than $31,000 are ineligible). And knowing that you’re eligible for the credit might encourage you to save a little more.
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The credit is worth 10% to 50% of the first $2,000 you contribute to the retirement plan for the year. You can claim the top 50% credit if your adjusted gross income in 2017 is less than $37,000 if married filing jointly, $27,750 if filing as head of household, or $18,500 for single filers. The credit is worth 20% of your contribution if you earn $37,001 to $40,000 if married filing jointly, $27,751 to $30,000 if filing as head of household, or $18,501 to $20,000 for single filers And you can qualify for a 10% credit if your income is $40,001 to $62,000 if married filing jointly, $30,001 to $46,500 for head of household, or $20,001 to $31,000 for single filers. You can’t claim the credit if you earn more than that.
To be eligible, you must also be 18 or older, not a full-time student for five months or more of the year, and not claimed as a dependent on another person’s tax return.
To claim the credit, file IRS Form 8880, Credit for Qualified Retirement Savings Contributions, with your tax return. For more information, see the IRS’s Retirement Savings Contributions Credit factsheet.
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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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