“Can you remind me of the special tax credit available for individuals who make retirement savings contributions, please?”
ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in Nevada is representative of a common inquiry regarding available tax credits for personal contributions to eligible plans.
Highlights of Discussion
Absolutely, after all, it is tax time! IRA owners, retirement plan participants (including self-employed individuals) and others may qualify for the IRS’s “Saver’s Credit” for certain contributions made to eligible savings arrangements. Details of the credit appear in IRS Publication 590-A and here Saver’s Credit.
- Equals an amount up to 50%, 20% or 10% of eligible taxpayer contributions up to $2,000 ($4,000 if married filing jointly), depending on adjusted gross income (as reported on Form 1040, 1040SR or 1040NR);
- Relates to contributions taxpayers make to their traditional and/or Roth IRAs, or elective deferrals to a 401(k) or similar workplace retirement plan (other plans qualify so see full list below); and
- Is claimed by a taxpayer on Form 8880, Credit for Qualified Retirement Savings Contributions.
Contributors can claim the Saver’s Credit for personal contributions (including voluntary after-tax contributions) made to
- A traditional or Roth IRA;
- Savings Incentive Match Plan for Employees (SIMPLE) IRA,
- Salary Reduction Simplified Employee Pension (SARSEP),
- Governmental 457(b),
- Federal Thrift Savings Plan,
- ABLE account* or
- Tax-exempt, union pension benefit plan under IRC Sec. 501(c)(18)(D).
In general, the contribution tax credit is available to individuals who
1) Are age 18 or older;
2) Not a full-time student;
3) Not claimed as a dependent on another person’s return; and
4) Have income below a certain level (see table that follows).
* The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities (designated beneficiaries). Funds from ABLE accounts can help designated beneficiaries pay for qualified disability expenses on a tax-free basis.
2021 Saver’s Credit Income Levels
|Credit Rate||Married Filing Jointly||Head of Household||All Other Filers*|
|50% of your contribution||AGI not more than $39,500||AGI not more than $29,625||AGI not more than $19,750|
|20% of your contribution||$39,501 – $43,000||$29,626 – $32,250||$19,751 – $21,500|
|10% of your contribution||$43,001 – $66,000||$32,251 – $49,500||$21,501 – $33,000|
|0% of your contribution||More than $66,000||More than $49,500||More than $33,000|
*Single, married filing separately, or qualifying widow(er)
The IRS has a handy on-line “interview” that taxpayers may use to determine whether they are eligible for the credit.
Every deduction and tax credit counts these days. Many IRA owners and plan participants may be unaware of the retirement plan-related tax credits for which they may qualify.