Did you know you can receive a tax credit just for participating in your employer-sponsored retirement plan? Most people don’t! In fact, only 1 in 8 who are eligible actually take advantage of it. If you contributed to your company’s 401(k) or 403(b) plan in 2018, you could be eligible.
If you qualify, you may receive a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly) if you made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.
Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.
Your eligibility depends on your Adjusted Gross Income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.
Use this chart to calculate your credit for the tax year 2018. First, determine your Adjusted Gross Income (AGI) – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.
For example:
- A single employee whose AGI is $18,000 defers $2,000 to her retirement plan will qualify for a tax credit equal to 50% of her total contribution. That’s a tax savings of $1,000.
- A married couple, filing jointly, with a combined AGI of $38,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.
With the Tax Saver’s Credit, you may owe less in federal taxes the next time you file by contributing to your retirement plan today! Make sure to speak with your tax professional to see if you are eligible.
This information and the examples are provided as general information and illustrative purposes only. This is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation.
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