question
Dear wise senior,
Can you explain how the retirement saver tax credit works? My wife and I are in our 50s and looking for creative ways to grow our retirement savings beyond our 401(k) . Does this qualify us too?
I’m having trouble saving
answer
Dear struggling people
If you have a low to moderate income and participate in an employer-sponsored retirement plan or IRA, the Retirement Savings Contribution Credit (also known as the “Saver Credit”) can help you further increase your retirement savings. A helpful and often overlooked tool. Here’s how it works:
If you contribute to a retirement savings account such as a traditional or Roth IRA, 401(k), 403(b), 457, Thrift Savings Plan, Simplified Employee Pension, or SIMPLE plan, you can claim 10, 20 with Savers Credit. It will be. Or 50 percent of the contribution, up to $4,000 per year for couples and $2,000 for singles.
A tax credit only reduces the amount of your income that is subject to taxes, whereas a tax credit reduces your actual tax bill dollar for dollar.
To qualify, you must also be at least 18 years old, not a full-time student, and not declared as a dependent on someone else’s tax return. Also, in 2023, her adjusted gross income (AGI) must be no more than $73,000 for a married couple filing jointly, no more than $54,750 for a married couple filing as head of household, and no more than $36,500 for a single filer. Must be. These income limits are adjusted annually for inflation.
To qualify for the 50% credit, married couples filing jointly must have income of less than $43,500. If she files as head of household, she gets $32,625. For a single filer in 2023, she will make $21,750.
The 20% credit rate applies to couples with incomes between $43,501 and $47,500. For head of household filers, he will receive between $32,626 and $35,625. For individuals, it ranges from $21,751 to $23,750.
And the 10% tax rate applies to married couples with adjusted gross income between $47,501 and $73,000. For head of household filers, he earns $35,626 to $54,750. For individuals, it ranges from $23,751 to $36,500.
Here’s an example of how this works: Let’s say you and your wife earn her $75,000 in 2023. In one year, you contributed $4,000 to her employer’s 401(k) plan. After deducting 401(k) contributions, her adjusted gross income (AGI) for joint earnings is $71,000. Because your girlfriend’s AGI puts you in the 10 percent credit bracket and you contributed up to $4,000 to be considered as a credit, you are entitled to a $400 Saver’s Credit on your tax return.
It’s also worth mentioning that the saver credit is in addition to the other tax benefits you get for your retirement savings. So in the previous example, not only is she entitled to a $400 credit, but she can also exclude her $4,000 401(k) contribution from her taxable income. So if your taxes are in the 12 percent bracket, this is an additional $480 in savings, for a total savings of $880.
Billing method
To claim your Saver’s Credit, you must provide the following information: Form 8880 Attach it to Form 1040 or 1040NR when you file your tax return.
For more information on the Saver’s Credit, see IRS Publication 590-A.Contributions to personal retirement plans”
The IRS also offers an online quiz you can take to determine if you qualify for the Saver’s Credit. To access this, go to IRS.gov/Help/ITA and click on “Am I eligible for the Retirement Savings Contribution Credit?” It’s under the “Credit” tab.
Send senior questions to Savvy Senior, PO Box 5443, Norman, OK 73070, or to: SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of the book “The Savvy Senior.”
=htmlentities(get_the_title())?>%0D%0A%0D%0A=get_permalink()?>%0D%0A%0D%0A=htmlentities(‘For more stories like this, be sure to visit https: // Visit www.eastidahonews.com/ for the latest news, community events, and more.’)?>&subject=Check%20out%20this%20story%20from%20EastIdahoNews” class=”fa-stack jDialog “>