Are you or someone you know overlooking one of Uncle Sam’s most generous tax breaks? The Saver’s Credit allows low- to moderate-income workers who are saving for retirement to reduce their federal tax bill by as much as $1,000 ($2,000 for married couples filing jointly). But just 25% of workers with annual household incomes of less than $50,000 are aware of the credit, according to a new Transamerica Retirement Survey.
“Unfortunately, many eligible workers may be missing out on the Saver’s Credit simply because they don’t know that it exists,” Catherine Collinson, president of the nonprofit Transamerica Center for Retirement Studies said in a news release on the survey.
The Saver’s Credit — also called the Retirement Savings Contribution Credit — may be applied to the first $2,000 in voluntary contributions an eligible worker makes to an IRA or an employer-sponsored retirement plan such as a 401(k) or 403(b). It’s easy to see why taxpayers might miss this credit. Because contributions in employer-sponsored retirement plans and IRAs grow tax free, workers often confuse the two benefits or figure the government wouldn’t offer two tax benefits for the same savings. But the credit is an important incentive for these workers to save for retirement, according to Collinson.
Here’s who’s eligible for the Saver’s Credit for the 2015 tax year.
- Single filers with adjusted gross income (AGI) of up to $30,500
- Head of households with AGI up to $45,750
- Married couples filing a joint return with AGI up to $61,000
Eligible taxpayers must file a 1040, 1040A or 1040NR. The credit is not allowed on the 1040EZ.
However, whether or not you are eligible for the Saver’s Credit, contributing to your employer-sponsored retirement account or a traditional IRA can be one of the best ways to maximize your tax refund. The reason? Your contributions are made with pre-tax dollars, which helps lower your taxable income – and build savings for the future. Knowing the basics of common tax exemptions and deductions can also help. You can find more information on the Saver’s Credit on the Transamerica Center for Retirement Studies website or on www.IRS.gov.
Remember, filing your taxes early can minimize the odds of falling victim to taxpayer identity theft. And, if you are a victim of tax refund fraud and believe your Social Security number was compromised, you should keep an eye on your credit for signs of other types of identity theft. You can do so by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.
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