Double Your Tax Savings
by Russ Blahetka on Jan 18, 2017
Could you use an extra $2000?
Almost everyone knows about the tax savings a retirement plan offers, such as a 401(k) or a 403(b). However, did you know for some tax payers there is a way to save twice, and possibly increase your refund? It is called the "Retirement Savings Contribution Credit," and it can be used even if you are contribution to a ROTH IRA.
How does it work?
If you contribute to any of the following retirement plans, you could be eligible for this credit:
- Traditional IRA
- Roth IRA
- SIMPLE IRA
- 501(c)(18) or governmental 457(b) plan
- Your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.
As this is a tax credit, not a tax deduction, you can reduce your taxes or increase any refund on a dollar for dollar basis. For example, if you owe Uncle Sam $500, and you qualify for a $600 credit, you can qualify for a $100 refund instead.
To take advantage of the credit, you cannot use Form 1040EZ. You can only use Form 1040 or 1040A. You must also file Form 8880. However, this is a small amount of work for the dollars you could save.
How do I qualify?
There are a few requirements:
- Age 18 or older;
- Not a full-time student; and
- Not claimed as a dependent on another person’s return.
How much can I claim?
Per 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). See the table below for reference:
|Credit Rate||Married Filing Jointly||Head of Household||All Others|
|50% of your contribution||AGI not more than $37,000||AGI not more than $27,750||AGI Not more than $18,500|
|20% of your contribution||$37,001 - $40,000||$27,751 - $30,000||$18,501 - $20,000|
|10% of your contribution||$40,001 - $62,000||$30,001 - $46,500||$20,001 - $31,000|
|0% of your contribution||More than $62,000||More than $46,500||More than $31,000|
You can find more details at the IRS Website on this credit. This credit provides a tax savings for those who would not normally receive any tax savings from ROTH IRA contributions or other retirement savings. It can be a way to provide for your retirement years and have a benefit today.
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