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Claiming the Saver’s Credit on Your Tax Return

Workers with modest incomes are rewarded with a tax credit of up to $1,000 for saving for retirement.

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QI’m about to start a new job that finally has a 401(k) and am trying to decide how much I can afford to contribute. Will my contributions make me eligible for the retirement saver’s tax credit, and how much will that be worth?

SEE ALSO: Qualifying for the Retirement Savers' Tax Credit

A

If you contribute to a 401(k), traditional or Roth IRA, 403(b), 457 or other retirement plan, you may be eligible for the retirement saver’s tax credit. The credit can be worth $200 to $1,000 per person, depending on your income (couples earning more than $62,000 and single filers earning more than $31,000 are ineligible). And knowing that you’re eligible for the credit might encourage you to save a little more.

The credit is worth 10% to 50% of the first $2,000 you contribute to the retirement plan for the year. You can claim the top 50% credit if your adjusted gross income in 2017 is less than $37,000 if married filing jointly, $27,750 if filing as head of household, or $18,500 for single filers. The credit is worth 20% of your contribution if you earn $37,001 to $40,000 if married filing jointly, $27,751 to $30,000 if filing as head of household, or $18,501 to $20,000 for single filers And you can qualify for a 10% credit if your income is $40,001 to $62,000 if married filing jointly, $30,001 to $46,500 for head of household, or $20,001 to $31,000 for single filers. You can’t claim the credit if you earn more than that.

SEE ALSO: Saver's Credit: A Retirement Tax Break for the Middle Class

To be eligible, you must also be 18 or older, not a full-time student for five months or more of the year, and not claimed as a dependent on another person’s tax return.

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To claim the credit, file IRS Form 8880, Credit for Qualified Retirement Savings Contributions, with your tax return. For more information, see the IRS’s Retirement Savings Contributions Credit factsheet.

SEE ALSO: 10 Best States to Protect Your Retirement Nest Egg From Taxes

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