What is the Savers Credit? And how do you qualify for this special tax credit?
Retirement Daily’s Robert Powell caught up with Jeffrey Levine, CPA and tax pro from Buckingham Strategic Wealth Partners, to answer that question and more.
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Quotes| The Savers Credit: What Is It, Who Qualifies? Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth Jeffrey Levine, Chief Planning Officer, Buckingham Strategic WealthRecommended Read: What Is the IRS Form 8880?
Video Transcript| Jeffrey Levine, CPA and Tax Expert, Buckingham Strategic WealthRobert Powell: What do taxpayers need to know about the Savers Credit? Well here to talk with us about that is Jeffrey Levine from Buckingham Strategic Wealth. Jeffrey, welcome.
Jeffrey Levine: It’s good to be with you, Bob. Yeah, the Savers Credit is one of those really amazing things in the tax code when people qualify for it, because it’s a way to actually get Uncle Sam to pay you via a tax credit to save for yourself in a retirement account. If you qualify, contributions to IRAs, 401(k)’s, even Roth IRAs, can be met, if you will, with a federal income tax credit. The challenge, though, is not everyone qualifies specifically. There are income limits on the ability to qualify for this credit. And those income limits are fairly modest. So that in and of itself takes a lot of people out of the running for the credit.
Beyond that, one of the other limitations is that you can’t be a student or claimed on someone else’s tax return. So let’s say, college students who would normally if they work a part-time job, let’s say if they save for retirement, they might be below the income limits, but they are prohibited from taking this because they are a student.
You can also have the issue where there is what they call a testing period. And what this is meant to do is it’s meant to prevent abuse from someone taking money out of their retirement account as a distribution and then kind of recycling it back in as a new contribution. But effectively, what it does is it limits the ability for those taking distributions from their retirement accounts from qualifying for this credit at all, which means once you reach 72, you know, at that point, once you have to take required minimum distributions, you probably can’t qualify for this either.
So at a high level, what do you need to know? Well, if you’re putting money away for your own retirement, check to see if you meet the provisions for the Savers Credit. Because if you do, it’s a valuable income tax credit where Uncle Sam will pay you to save for yourself.
Robert Powell: And if I’ve read articles correctly, many people who qualify for the credit failed to claim it for various reasons. Is that correct?
Jeffrey Levine: That’s right. A lot of people don’t realize that this credit exists because it almost sounds like too good to be true. You’re telling me that I can put away my own money in my retirement account and then Uncle Sam will pay me to save for myself. Like, it sounds like something made up. But yes, it is a real credit. It really applies. And especially if you’re filing your own return, you want to verify that you have completed all the forms necessary and input, and yet if you qualify, will receive every deduction and credit you’re entitled to. Because you are required to pay the minimum amount of tax that you owe Uncle Sam each year, but if you pay more, that’s your choice.
Editor’s Note: The content was reviewed for tax accuracy by a TurboTax CPA expert.
Zach Faulds contributed to the writing of this article and produced the video and/or the graphics associated with it.