Just because you’ve got an IRA or a 401(k) doesn’t mean much unless there’s actual money in it. And if you knew where to look, you could be making some extra cash off it.
But most Americans aren’t looking. The Transamerica Center for Retirement Studies (TCRS) says the majority of Americans, 66 percent, are eligible for a tax credit just for saving retirement money, but aren’t aware this credit exists.
The Saver’s Credit, or the Retirement Savings Contributions Credit, is available to those who are saving for later in life through an IRA, 401(k), 403(b), or myRA. Only one in three Americans are actually taking advantage of it, though.
“Eligible taxpayers may be able to reduce their federal income tax by claiming the Saver’s Credit,” says Catherine Collinson, president of TCRS. “Unfortunately, millions of Americans may be missing out on the Saver’s Credit simply because they don’t know that it exists.”
If you’ve contributed $2,000 (or less) to your retirement account; you could be eligible for savings when you file your taxes. For single/individual filers, the maximum credit is $1,000, or $2,000 for married couples.
“The Saver’s Credit is a tax credit above and beyond the advantage of tax-deferred savings when contributing to a 401(k), 403(b), or IRA, or myRA,” Collinson says. “Because this double benefit sounds too good to be true, many eligible savers may be actually confusing the two incentives.”
How to get the Saver’s Credit
TCRS says if you’re an adult filing taxes and have contributed to a retirement account in some form — through an independent IRA/myRA or company-sponsored one — you could receive the tax credit. Other requirements include:
- Your adjusted gross income (AGI) as a single filer was $30,750 or less in 2016;
- For the head of household, the AGI limit is $46,125 in 2016;
- For married/joint filers, the AGI limit is $61,500 for 2016.
Sorry, full-time students: You can’t claim this benefit. Neither can anyone being claimed as a dependent on someone else’s tax return.
Make sure you’re using the right form when filing your taxes, or you may not be able to get the credit. TCRS says the 1040EZ form doesn’t offer the Saver’s Credit. If you’re eligible, use Form 1040, Form 1040A or Form 1040NR.
When you use the Free File option from the Internal Revenue Service, these forms are readily available. But if you’re preparing your taxes manually, complete the Form 8880 before transferring that amount to any of the eligible forms you’re using. If you’re using a professional tax preparer, don’t forget to inquire about it before filing.
How to make the most of your credit
If you’ve gone through with checking your eligibility and found that you qualify, great! When you file, make sure you choose the direct deposit option to get your refund as soon as possible.
So what are you going to do with that refund? Many Americans will spend it, but that doesn’t mean you should!
Take your refund and put it straight into a personal investment, whether that’s a retirement account, a traditional savings account, or stocks, if you have them. The best way to make sure you don’t spend it is to get it into another account as soon as you can. Pretend you didn’t even have the money in the first place and you won’t be tempted to spend it!
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