
401(k) After-Tax Contributions May Be Testy–But Worth It
“What are the limitations, if any, on making after-tax contributions to a 401(k) plan?” Read more
“What are the limitations, if any, on making after-tax contributions to a 401(k) plan?” Read more
“What contributions are eligible for the retirement savings tax credit?”
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 Oklahoma is representative of a common inquiry regarding available tax credits for retirement contributions.
Highlights of Discussion
IRA owners and retirement plan participants (including self-employed individuals) may qualify for a retirement savings contribution tax credit. Details of the credit appear in IRS Publication 590-A and here Saver’s Credit.
The credit
Contributors can claim the Saver’s Credit for personal contributions (including voluntary after-tax contributions) made to
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.
2018 Saver’s Credit Income Levels
Credit Rate | Married Filing Jointly | Head of Household | All Other Filers* |
50% of your contribution | AGI not more than $38,000 | AGI not more than $28,500 | AGI not more than $19,000 |
20% of your contribution | $38,001 – $41,000 | $28,501 – $30,750 | $19,001 – $20,500 |
10% of your contribution | $41,001 – $63,000 | $30,751 – $47,250 | $20,501 – $31,500 |
*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.
Conclusion
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.
“What are the considerations for a 401(k) plan participant who wants to “max out” his/her after-tax contributions in the plan?”
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 plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Ohio is representative of a common inquiry related to after-tax contributions in 401(k) plans.
Highlights of Discussion
Conclusion
Roughly one-third of 401(k) plans today offer participants the ability to make after-tax contributions.[1] While this may be viewed as a benefit from many perspectives, there are several important considerations of which plan participants must be aware.
[1] Plan Sponsor Council of America, 59th Annual Survey; and Retirement Learning Center Plan Document Database, 2018