Saver's Tax Credit

AAA

DEFINITION of 'Saver's Tax Credit'

A non-refundable tax credit available to lower income individuals and households that contribute to qualified retirement savings plans. This includes employer-sponsored plans such as 401(k), SIMPLE and SEP plans, or the governmental 457 plan, along with contributions to Traditional and Roth IRAs. The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution.

INVESTOPEDIA EXPLAINS 'Saver's Tax Credit'

A taxpayer must be at least 18 years old to be eligible for the credit. Individuals that are full-time students, were full-time students for at least five months of the year, or filed as dependents are not eligible.

The maximum contribution amount to which this credit can be applied is $2,000. For households with an adjusted gross income of $30,000 and under ($22,500 for individuals) the credit rate is 50%. Households with an adjusted gross income of between $30,001 and $32,500 ($22,501 – $24,375 for individuals) the credit rate is 20%. For households earning an adjusted gross income of $32,501 to $50,000 ($24,376 – $37,500 for individuals) the credit rate is 10%. For example, an individual earning $22,900 who contributes $2,000 to a retirement plan will receive a tax credit of $400 ($2,000 x 20%).

Any amount above the 10% credit rate limits are not eligible for this tax credit.

VIDEO

RELATED TERMS
  1. Energy Tax Credit

    An energy tax credit is given to homeowners who make their homes ...
  2. Credit For Qualified Retirement ...

    Also known as IRS Form 8880, the Credit for Qualified Retirement ...
  3. Savings Incentive Match Plan For ...

    A retirement plan that may be established by employers, including ...
  4. Non-Refundable Tax Credit

    A tax credit that can't reduce the amount of tax owed to less ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. 457 Plan

    A non-qualified, deferred compensation plan established by state ...
Related Articles
  1. Saver's Tax Credit: A Retirement Savings ...
    Savings

    Saver's Tax Credit: A Retirement Savings ...

  2. IRA Contributions: Deductions and Tax ...
    Taxes

    IRA Contributions: Deductions and Tax ...

  3. 5 Retirement-Wrecking Moves
    Retirement

    5 Retirement-Wrecking Moves

  4. How To Save More For Your Retirement
    Taxes

    How To Save More For Your Retirement

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center