There are several things when added together make them that much better.
One personal favorite is peanut butter and jelly. Mmmmm…..
My kids would vote for Tom and Jerry.
In the investing world, there’s nothing better than saving for yourself and getting a tax credit on top of it.
The retirement savings contribution credit often referred to as “The Saver’s Credit” can be a great way for middle and low income people to save a lot of money on their taxes.
It is important to note, however, that there are several different rules that have to be followed in order to take the credit on a federal income tax filing.
Tax Rules of the Retirement Savings Contribution Credit
The first rule about the retirement savings contribution credit or the savers credit, as it is now called, is that there are income limits. These limits have been put into place to encourage middle and lower income earners to save a portion of their income.
Single filers, people who are married but filing separately, and qualifying widows and widowers cannot earn more than, $27,750 a year in order to qualify for this credit. A head of household cannot have income higher than $41,625.
Finally, a married couple who is filing jointly, cannot have an income higher than $55,500 in order to qualify. This income is considered to be adjusted gross income, so it is possible that people who make more than this amount but have significant reductions on their income may qualify.
Next, in order to qualify for the credit a person must have been born before January 2, 1993. A taxpayer is also not allowed to be a full-time student at any point in time during the year in which taxes are being filed. He or she also should not be claimed as a dependent on another taxpayer’s return.
Even if a person is able to meet these requirements, he or she still needs to make sure that they contribute enough to the right types of retirement accounts in order to be able to take the credit. In general, this means that a taxpayer must make a contribution to an IRA, 401(k) or a couple of other of specific retirement plans. By doing this, a person is able to take a credit that can be no more than $1,000 for an individual or $2,000 for a married couple filing jointly.
Retirement savings contribution credit = $1,000 for an individual or $2,000 for a married couple filing jointly.
Determining how much of a credit a taxpayer qualifies for can be tricky. The credit offered is only a percentage of the total qualifying contribution amount. This percentage shrinks as a taxpayer’s income increases.
The Saver’s Credit Explained More
There are several other rules governing how much of a credit a taxpayer can claim. For example, a taxpayer is required to subtract the total amount of distributions a taxpayer has received from his or her retirement plans from the contributions he or she has made. It is important to note that this rule applies to any distributions that have been received by the taxpayer in the past two years and the current calendar year.
For many people who regularly contribute to their retirement plans, the retirement savings contribution credit can be a good way to save hundreds of dollars on their taxes.