As Americans tighten their belts amid inflation and the effects of a cost-of-living crisis, the Internal Revenue Service (IRS) has reminded workers that it's important to plan for their futures too.
On Monday, the IRS issued advice for low- and moderate-income taxpayers, pointing out that they can save for retirement now and possibly earn a tax credit in 2025 and future years as a result.
The Retirement Savings Contributions Credit, also known as the Saver's Credit, "helps taxpayers offset a portion of the first $2,000 ($4,000 if married filing jointly) they voluntarily contribute to Individual Retirement Arrangements (IRAs), 401(k) plans and similar workplace retirement programs," the IRS said in the document, which was published on its website. "The credit also helps eligible persons with a disability who are the designated beneficiary of an Achieving a Better Life Experience (ABLE) account and contributes to that account."
The maximum Saver's Credit is $1,000, or $2,000 for married couples. The credit can increase a taxpayer's refund or reduce the tax owed, but it is also affected by other deductions and credits. "Rollover contributions do not qualify for the credit, and distributions from a retirement plan or ABLE account reduce the contribution amount used to figure the credit," the IRS explained.
Taxpayers are eligible for the credit if they meet the following criteria:
- Age 18 or older,
- Not claimed as a dependent on another person's return
- Not a full-time student
The Saver's Credit can be claimed by:
- Married couples filing jointly with adjusted gross incomes up to $76,500
- Heads of household with adjusted gross incomes up to $57,375
- Married individuals filing separately and singles with adjusted gross incomes up to $38,250
- Qualified surviving spouse filers
People with Individual Retirement Arrangements (IRAs) have until April 15, 2025—the due date for filing their 2024 return—to set up a new IRA or add money to an existing IRA for 2024. Both Roth and traditional IRAs qualify.
There's a tighter deadline for others, but those with workplace retirement plans still have time to make qualifying retirement contributions and possibly get the Saver's Credit on their 2024 tax return. Contributions to workplace retirement plans must be made by December 31 to one of the following:
- 401(k) plan
- 403(b) plan for employees of public schools and certain tax-exempt organizations
- Governmental 457 plan for state or local government employees
- Thrift Savings Plan (TSP) for federal employees
For further advice, workers should visit the IRS's website page called Form 8880, Credit for Qualified Retirement Savings Contributions for a list of qualifying workplace retirement plans along with further details.
Taxpayers may also visit the Saver's Credit page on the IRS's website to learn more about rules, contribution rates and credit limits.
And for more news on the various tax credits available in the U.S., visit Newsweek's dedicated area to the topic on our website.
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