What is the income limit to claim the retirement savers’ credit? My daughter’s income is less than $30,000, but I thought I read that adjusted gross income had to be less than $18,000 to claim the credit.
This is a good time to ask about the retirement savers’ tax credit because it’s a tax break that many people overlook. (See our list of the 24 Most Overlooked Tax Deductions for more.) If you’re single and your adjusted gross income was less than $30,000 in 2014 (or $60,000 if married filing jointly), you can get an extra tax break if you contributed to an IRA, 401(k), 403(b), 457, Thrift Savings Plan, SEP or other retirement-savings plan. That break is in addition to any pretax or tax-deductible benefits you already received for the contribution.
TOOL: Retirement Savings Calculator
The $30,000 you heard about is the maximum income that single filers can have and still qualify for the credit. But the amount of the credit varies based on actual income, and that’s where the $18,000 comes in. If your daughter earned $18,000 or less, her credit would be worth 50% of the amount of money she contributed to a retirement-savings plan (up to $2,000 in contributions counts toward the calculation, resulting in a maximum credit of $1,000.) If she earned $18,001 to $19,500, her credit would be worth 20% of her contribution (with a maximum credit of $400). And the credit drops to 10% of her contribution if she earned $19,501 to $30,000 (with a maximum credit of $200).
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Joint filers can count up to $4,000 in combined contributions ($2,000 each), with income limits for each level. The credit is worth up to 50% of their contributions if their joint income was less than $36,000 in 2014, 20% if they earned $36,001 to $39,000, and 10% if they earned $39,001 to $60,000. The income levels increase slightly for 2015 contributions. See this IRS fact sheet for more details about the income limits for both years.
Your daughter must also meet a few other criteria to qualify for the break. She must be 18 or older and cannot be a full-time student or claimed as a dependent on another person’s return. For more information, see IRS Form 8880, Credit for Qualified Retirement Savings Contributions.
-
AI Stocks Lead Nasdaq's 398-Point Nosedive: Stock Market TodayThe major stock market indexes do not yet reflect the bullish tendencies of sector rotation and broadening participation.
-
Top Tech Gifts to Grab at Walmart Before ChristmasBig savings on Apple, Bose, HP, Vizio and more while there's still time to shop.
-
AI Appliances Aren’t Exciting Buyers…YetThe Kiplinger Letter Artificial intelligence is being embedded into all sorts of appliances. Now sellers need to get customers to care about AI-powered laundry.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
-
How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
