Tax talk: Save more with saver’s credit
With America Saves Week taking place recently, it’s the perfect time for a reminder about a special tax credit that can help low- and moderate-income workers save for retirement.
The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to plans like Purdue’s voluntary 403(b) and 457(b) retirement programs. Also known as the Retirement Savings Contributions Credit, the saver’s credit is available along with any other tax savings that apply.
The new Purdue Matching Retirement and Savings Plan for clerical, service and operations/technical staff was introduced in 2013. It’s set up to auto-enroll participants in the voluntary 403(b) savings plan to maximize the matching 4 percent that the University will contribute to retirement. This creates a greater potential for more Purdue staff to be eligible for the saver’s credit, since an increased number of people are setting aside their own dollars for retirement.
“The saver’s credit is a tax credit that can reduce an eligible taxpayer’s federal income tax, but we need to get the word out so that eligible workers don’t miss out on this opportunity,” said Eva Nodine, director of benefits.
Can I claim it?
Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The amount of the credit is up to 50 percent of retirement plan contributions of up to $2,000 (or $4,000 for married couples filing jointly), depending on the filer's adjusted gross income, as reported on their Form 1040 or 1040A. Although this means the maximum saver’s credit is $1,000 (or $2,000 for married couples filing jointly), the IRS cautions that it is often much less and, due to the impact of other deductions and credits, may not be available to some taxpayers.
Generally, the saver’s credit can be claimed by:
- Married couples filing jointly with incomes of up to $61,000 in 2015 ($61,500 in 2016).
- Heads of household with maximum incomes of $45,750 in 2015 ($46,125 in 2016).
- Singles and married individuals filing separately with incomes of up to $30,500 in 2015 ($30,750 in 2016).
Form 8880, which is used to claim the saver’s credit, has instructions that outline how to correctly calculate the credit.
Income limits for the saver’s credit are adjusted annually to keep pace with inflation.