There are plenty of reasons for workers to save for retirement, but an important one to consider this time of year is the potential for a huge tax savings.
Eligible taxpayers who put money into a qualified retirement account can not only deduct the retirement contribution on their taxes, but they can also take the Saver’s Credit, also known as the Retirement Savings Contribution Credit. That makes the credit quite valuable -- but only one in three American workers is even aware that it exists, according to a report from the Transamerica Center for Retirement Studies.
“The Saver’s Credit is a tax credit above and beyond the advantage of a tax-deferred savings plan when contributing to a 401(k), 403(b), or similar employer-sponsored retirement plan, or an IRA or myRA,” Catherine Collinson, TCRS president said in a statement. “Because this double benefit sounds too good to be true, many eligible savers may actually be confusing the two incentives.”
The credit is available to adult taxpayers who cannot be claimed as a dependent on someone else’s tax return. To qualify for the credit on your 2016 taxes, single filers must have an adjusted gross income of $30,750 or less, and married filers must make less than $61,500.
If you’re eligible but didn’t save any money for retirement last year, there’s still time. You can make contributions to an IRA or a myRA account through April 18 and have them count toward your 2016 taxes. The credit is not available with Form 1040EZ, so be sure to use Form 1040, 1040A, or Form 1040NR.