Retirement Contributions Credit or Saver's Credit
If you eFile an extension by April 15, 2020 you can e-File your 2019 Returns by Oct. 15, 2020 on eFile.com without a late filing penalties - late tax payment penalties might apply. If you don't owe Taxes or expect a tax refund you have until April 15, 2023 to claim your refund. After that dates you would have lost your refund or can no longer claim it.
Do you make contributions to a retirement plan? In addition to deducting the amount of your qualified contributions, you may be able to claim an additional credit for those same retirement contributions. The Saver's Credit (also known as the Qualified Retirement Savings Contributions Credit) was designed to help lower to middle income ranges: the lower the income the bigger tax break.
The Saver's Credit may allow you to reduce your income tax dollar-for-dollar by up to $1,000 or $2,000 for Married Filing Jointly. The exact amount of the Saver's Credit is based on how much money you contributed and what percentage of your contributions qualify. This percentage, or credit rate, of 10%, 20%, or 50%, is determined by your AGI or adjusted gross income and your tax return filing status. See the tables below for details by tax year.
The saver's tax credit is non-refundable tax credit. It will only reduce the taxes you may owe, it will not increase your tax refund. The maximum contribution used to calculate the amount of the Saver's Credit is $2,000 per person or $4,000 for a couple if filing jointly. See the details below.
2019 Saver's Credit Rates
The saver's credit rates below apply for tax year 2019. When you prepare your 2019 taxes via the eFile.com tax app you can be certain to have the right rates calculated/applied for you return. Prepare and eFile your 2019 Federal and State Taxes by April 15, 2020. Estimate your 2019 Tax Return now with the eFile.com Tax Calculator. Access back taxes forms or previous tax years here.
* MFS: Married Filing Separate. MFJ: Married Filing Joint.
Use the 2019 Tax Calculator and Tax Estimator and avoid Tax Surprises.
In this case study let's say a couple contributed combined $1,000 to a retirement account and they are filing their taxes as: married filing a joint. If the adjusted gross income or AGI of the couple was $50,000, then the saver's tax credit rate would be in the 10%. As a result the saver's tax credit dollar amount would be $100 or 10% of $1,000 total retirement contribution. If the same couple's AGI had been $35,000 the saver's tax credit dollar amount would be $500 or or 50% of $,1000. For married couples - filing jointly - the retirement contribution from each spouse is eligible for the saver's tax credit. In order to max out the saver' tax credit, each spouse would contribute $2,000. If the AGI income qualified them for the 50% credit amount, then each would get $1,000, for a total combined tax savings of $2,000. Keep in mind the tax saver's tax credit is a non-refundable tax credit.
Tax Year 2020 Saver's Tax Credit Income Limits, Rates
* MFS: Married Filing Separate. MFJ: Married Filing Joint.
Retirement Plans That Qualify for the Saver's Credit
You can claim the tax credit for contributing to any of the following retirement plans:
- Traditional IRA
- Roth IRA
- 401(k) plan
- 403(b) annuity (including voluntary after-tax contributions)
- 501(c)(18) plan
- 457 (Governmental) plan
- SIMPLE IRA
- SIMPLE 401(k) plan
Saver's Credit Qualifications
You must meet the following requirements in order to qualify for the Saver's Credit:
- You must be at least 18 years old and not claimed as a dependent on someone else's tax return.
- You cannot be a full-time student, or have been one for 5 or more months of the year.
- Your income for 2018 must not be more than $31,500 if Single or Married Filing Separately (for 2019 the income must not be more than $32,000), $47,250 if filing as Head of Household (for 2019 it is $48,000), or $63,000 if Married Filing Jointly (for 2019 it is $64,000).
- When calculating the credit, you must deduct from the contributions you have made the amount of any retirement plan or annuity distributions you received in the current tax year and in the previous two tax years. Also note that foreign income cannot be included in your adjusted gross income for the purposes of calculating this credit.
Other Tax Benefits for Retirement Contributions:
- Deduction for IRA Contributions- Even if you get the Saver's Credit, you can still make deductions on your tax return for qualified retirement contributions. The deduction for IRA contributions is an above-the-line deduction, which means that you do not have to itemize deductions to claim it. You can generally deduct the full amount of your qualified contributions, up to your contribution limits for the year.
- Contribute to a Roth IRA - Whether or not you qualify for the Saver's Credit, you might consider making your contributions to a Roth IRA. You can also rollover your Traditional 401(k) or Governmental 457(b) plan into a Roth account. Contributions to a Roth IRA are taxable, but you can count your contributions toward the Saver's Credit. The biggest benefit of a Roth IRA is the fact that any capital gains it earns will be tax-free, and your post-retirement distributions will generally be nontaxable. In 2018, you can contribute to a Roth IRA if your modified adjusted gross income is less than $135,000 ($199,000 if married filing jointly). In 2019, you can contribute to a Roth IRA if your modified adjusted gross income is less than $137,000 ($203,000 if married filing jointly). However, if your modified AGI is between $120,000 and $135,000 ($189,000 and $199,000 if married filing jointly), your maximum contribution to a Roth will be phased out (reduced). For 2019, if your modified AGI is between $122,000 and $137,000 ($193,000 and $203,000 if married filing jointly), your maximum contribution to a Roth will be phased out (reduced). Learn more about the tax benefits of Traditional and Roth IRAs in Publication 590 - Individual Retirement Arrangements.
- ABLE Contributions - Starting with 2018 Tax Returns, you can use part or all of your Achieving a Better Life (ABLE) account contributions to claim the Saver's Credit if you are the designated beneficiary (eligible person with a disability) and you work. However, rollover contributions from another ABLE account or from a Qualified Tuition Plan (QTP) account do not qualify for the credit. In addition, any eligible contributions may be reduced by any recent distributions you received from your ABLE account.
Related Information on Retirement Income and Tax Credits