6 Things You May Not Know About the Saver’s Credit

Workers are routinely educated on the benefits of pre-tax savings – there is, however, another tax incentive of which most are unaware.

We’re talking, of course, about the so-called Saver’s Credit; Transamerica Center for Retirement Studies’ (TCRS) 18th Annual Retirement Survey found that two in three American workers are unaware of the Saver’s Credit.

Those who are aware likely know that the Saver’s Credit is a credit – a dollar-for-dollar reduction of tax liability against the taxes you owe ­– not a deduction. If the standard or itemized deductions or personal exemptions eliminate tax liability, you can’t claim the Saver’s Credit. Moreover, it can’t be carried forward to the next year. Nor can you get a tax refund based only on the amount of the Saver’s Credit.

The amount of the credit is 50%, 20% or 10% of retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on adjusted gross income (reported on Form 1040 or 1040A). While the amount of the credit has remained unchanged, the income levels eligible have increased both of the last wo years.

Oh – and in order to claim the credit, you must be 18 years or older, must not be a full-time student, and cannot be claimed as a dependent on another person’s return.

However, here are some things you may not know about the Saver’s Credit:

You can get “credit” for more than 401(k) contributions.

The Saver’s Credit can be taken for contributions to a traditional or Roth IRA, SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan, as well as voluntary after-tax employee contributions to qualified retirement and 403(b) plans – oh, and 401(k).

While many may not know about the Saver’s Credit, millions do.

In tax year 2015 (the most recent year for which complete figures are available), Saver’s Credits totaling nearly $1.4 billion were claimed on more than 8.1 million individual income tax returns, according to the IRS.

There are two deadlines for contributions.

To qualify for the Saver’s Credit, contributions must be made to 401(k)s, 403(b)s, 457s or the federal government’s Thrift Savings Plan by the end of the calendar year. However, retirement savers have until April 17, 2018, to make an IRA contribution that could qualify them for the Saver’s Credit for tax year 2017.

There’s no “credit” for rollovers.

Rollover contributions aren’t eligible for the Saver’s Credit.

There is a “penalty” for savings plan withdrawals.

Eligible contributions for the Saver’s Credit may be reduced by any recent distributions from a retirement plan or IRA (for example, in 2017, those received after 2014 and before the due date (including extensions) of your 2017 tax return).

You file for the Saver’s Credit with your taxes – but it’s (still) not “EZ.”

The Saver’s Credit is (still) not available via the 1040 EZ form.

It’s not too late to save and get “credit” for doing so — make sure the participants you work with, and plan sponsors you work for — are aware.

Additional information about the Savers Credit is available here.

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