Saver’s Credit aka [Retirement Contribution Credit]
Once known as the Retirement Savings Contributions Credit, the Savers Credit offers a tax break to low and moderate-income taxpayers who are saving for retirement. The Saver’s Credit is a 'non-refundable' credit. This means it can only be used to reduce your taxes owed, but can’t provide a tax refund.
How much is the credit?
The credit is designed to offset the first $2,000 taxpayers voluntarily contribute to their retirement account. Depending on your adjusted gross income, tax filing status, tax liability and the amounts contributed to a qualifying retirement account, you can either claim 50%, 20% or 10% of that amount. Therefore, the credit amounts that can be claimed are $1,000 ($2,000 for married couples filing jointly), $400 or $200.
Am I eligible?
Special rules apply to the saver’s credit include the following:
Eligible taxpayers must be at least 18 years of age.
Anyone claimed as a dependent on someone else’s return cannot take the credit.
A full-time student cannot take the credit. [A person enrolled full-time during any part of 5 calendar months during the year is considered a full-time student.]
You must meet the income requirements.
Certain retirement plan distributions reduce the contribution amount used to figure the credit.
Eligible Retirement Accounts
The credit can be claimed only for employee’s contributions to a 401k, 403(b), 457 plan, a Simple IRA or a SEP IRA. You cannot claim your employer's contributions. Furthermore, contributions to a traditional IRA or a Roth IRA are also eligible for the Saver’s Credit.
Eligible taxpayers still have time to make qualifying retirement contributions and get the saver’s credit on their 2016 tax return. Taxpayers have until the due date for filing which is April 18th 2017, to set up a new IRA or add money to an existing IRA for 2016.
However, employee contributions must be made by the end of the year to a 401(k) plan, a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, or the Thrift Savings Plan for federal employees.