You might be able to claim the retirement savings contribution credit. As a part of your year-end retirement planing and investment checklist, check to see if it’s available to you.
The retirement saver’s credit — officially called the retirement savings contribution credit — is often ignored and or forgotten, according to Jeffrey Levine, an IRA technical consultant with Ed Slott and Company in Rockville Centre, N.Y.
In fact, just 24% of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 15th Annual Transamerica Retirement Survey. And that’s too bad because the credit, for those low- to moderate-income workers who qualify, could mean a $1,000 to $2,000 tax break.
So what is this credit that 75% of Americans don’t know about or ignore?
According to the IRS, you may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. And you’re eligible for the credit if you’re age 18 or older; not a full-time student; and not claimed as a dependent on another person’s return. (See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the definition of a full-time student.)
According to the IRS, the amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A).
The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans, according to the IRS. It can’t be taken, however, rollover contributions. Plus, eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA. For more background, read Retirement Savings Contributions Credit (Saver’s Credit).
Another year-end tip: It’s a good time to harvest your losses.
Also, read “7 Things You May Not Know About the Saver’s Credit (and 4 You Should)” by Nevin Adams, the chief of communications and marketing at American Retirement Association.
View more information: https://www.marketwatch.com/story/dont-forget-the-retirement-savers-credit-2015-12-18