Get a Tax Reward for Saving for Retirement
If you sock away money in a retirement plan, you may be eligible for a tax credit from Uncle Sam worth up to $1,000 per person.
Question: My son works full-time but his employer doesn’t offer a 401(k). Is he eligible for the retirement saver’s tax credit?
Answer: He could be if he contributes to an IRA or other retirement-savings plan. To be eligible for the credit, he must be 18 or older, not a full-time student and not claimed as a dependent on another person’s return. He also must meet the income criteria. In 2018, single filers can only qualify for the saver’s credit if their adjusted gross income is $31,500 or less. The income limit is $47,250 for people filing as head of household and $63,000 for joint filers.
The size of the credit is based on the amount of money you contribute for the year to a retirement-savings plan, such as a traditional or Roth IRA, 401(k), 403(b) or 457 plan. The credit is worth 10%, 20% or 50% of the first $2,000 contributed for the year—with a maximum credit of $1,000 per person ($2,000 for joint filers).
Sign up for Kiplinger’s Free E-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.
The top 50% credit can be claimed if AGI in 2018 is up to $19,000 for single filers, $28,500 for heads of household or $38,000 for married joint filers. The credit is worth 20% of your contribution if income is $19,001 to $20,500 for singles, $28,501 to $30,750 for heads of household, and $38,001 to $41,000 for joint filers. You can claim a credit worth 10% of your contribution if you’re single with income between $20,501 to $31,500, or a head of household with income of $30,751 to $47,250 or married filing jointly with income of $41,001 to $63,000. You can’t claim the credit if you earn more than that.
The income cut-offs are slightly higher for 2019. See the IRS’s Saver’s Credit factsheet for the income limits for each year from 2015 to 2019. (If you qualified for the credit in the past three years and didn’t claim it, you can file an amended return and get a refund. (See 10 Money-Smart Reasons to Amend Your Tax Return for more information.)
If your son contributes to an eligible retirement-savings plan and his income is below the cut-offs, he should submit Form 8880 to claim the credit when he files his 2018 income-tax return.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Six Ways Women Can Overcome Any Financial Obstacles Holding Them Back
To improve your financial situation, focus on empowering yourself first.
By Kiplinger Advisor Collective Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Getting Out of an RMD Penalty
retirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
By Kimberly Lankford Published
-
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.
By Kimberly Lankford Published
-
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.
By Kimberly Lankford Published
-
How Your HSA Can Reimburse You for Medicare Premiums Paid
Medicare Even if your Medicare premiums are automatically deducted from your Social Security check, you can take tax-free withdrawals from an HSA to reimburse yourself.
By Kimberly Lankford Last updated
-
How to Correct a Mistake on Your RMDs from IRAs
retirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
By Kimberly Lankford Published
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
By Kimberly Lankford Published
-
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.
By Kimberly Lankford Published
-
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.
By Kimberly Lankford Published