Monday, December 22, 2014

How to Claim the Saver’s Credit / You can get a tax deduction and a credit if you save for retirement in a 401(k) or IRA.

Emily Brandon for US News World Report writes: The saver’s credit can be worth as much as $1,000 for individuals and $2,000 for couples who save in 401(k)s and individual retirement accounts. And this tax credit can be claimed in addition to the tax deduction for traditional retirement account contributions. Here’s how to take advantage of this tax credit for retirement savers.

Save in a 401(k) or IRA. The saver’s credit can be claimed on up to $2,000 for individuals and $4,000 for couples for funds contributed to IRAs, 401(k) plans and similar workplace retirement accounts. But awareness of this valuable tax credit remains low, with just 28 percent of Americans saying they know about the saver’s credit, according to a survey of 4,143 workers by Harris Poll for the Transamerica Center for Retirement Studies.
Meet the income requirements. The saver’s credit is meant to help low- and middle-income workerssave for retirement. The income limits for 2014 are $30,000 for individuals, $45,000 for heads of household and $60,000 for couples. These income limits are adjusted annually to keep up with inflation and will increase to $30,500 for individuals, $45,750 for heads of household and $61,000 for couples in 2015.
Watch out for other restrictions. The saver’s credit cannot be claimed by people under age 18, full-time students or those who are claimed as a dependent on someone else’s tax return. Distributions from retirement accounts can also reduce the credit amount.
Calculate your credit. The amount of the credit ranges from 10 percent to 50 percent of the amount contributed to a retirement account up to $2,000 ($4,000 for couples), depending on your income. “The less income you have, the more of the credit you get,” says Robert Reed, a certified financial planner for Partnership Financial in Columbus, Ohio. “It’s specifically targeting middle-income working folks.” To get a 50 percent credit in 2014, retirement savers need to earn $18,000 or less ($36,000 or less for couples). Those earning between $18,001 and $19,500 ($36,001 to $39,000 for couples) get a 20 percent credit. And savers earning between $19,501 and $30,000 ($39,001 and $60,000 for couples) get a 10 percent credit. So a couple earning $30,000 who puts $1,000 in an IRA could earn a $500 credit, in addition to the tax deduction for the same contribution. A couple earning $58,000 who saves the same amount in an IRA would get a $100 credit. [snip]  The article continues @ US News World Report,  Click here to continue reading....

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