The IRS?s saver?s credit, gives low to moderate income workers an additional reason to start saving in a 401K or other retirement plans. Not only do you still get the usual advantages of tax savings through reducing your income and tax deferral until retirement, you also get a tax credit. The IRS has called this term the ?saver?s credit.?
The credit was introduced in 2001 to encourage low to moderate income earners to start contributing towards retirement plans.
A tax credit is awarded between 10% and 50% for the first $2,000 of contributions in your retirement plan. The higher your salary the more the credit is phased out. The savers credit works for 401Ks, 403B?s, 457?s, Thrift Savings Programs, and IRA?s.
401K Tax Credit Eligibility
- Minimum of 18 years old
- Can not be claimed as a dependent or be a full time student
- Married couples who file jointly with an income of less then $53,000
- Married filing separately or singles with a income of less then $26,500
- Head of household with income less then $39,750
Here?s How it Works
The contributor sees a decrease of $500 on taxes, and $2,000 saved for retirement.
I know it doesn?t sound like much, but it makes a difference. Plug your information into a 401K Paycheck Calculator to see how this little effort produces large results. Even $50 a paycheck can reduce your taxes and give you a nice income during retirement.
In order to get the exact credit to your taxes, fill out Form 8880. It can be found at IRS?s Website.
To find out if you?re eligible for the saver?s credit, it?s best to consult a tax professional who knows about your specific circumstance. This is a great example of how a tax professional can find you savings to pay for their services.
Source: http://www.thehumblemumble.com/savers-credit-additional-motivation/
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