This Tax Credit Can Save You Up to $1,000 in Retirement Investment

This year, you might be able to get a tax credit for investing in your own financial freedom. You can obtain a percentage of your contributions to qualifying retirement savings accounts returned when you submit your federal tax return if you claim the Retirement Savings Contributions Credit (Saver’s Credit).

Your eligibility, as well as the amount you are eligible for, is determined by your retirement plan, adjusted gross income, filing status, and other considerations.

What is Saver’s Credit?

Here’s what you need to know about claiming the Saver’s Credit if you contributed to a retirement plan in 2021 — and what you can still do before submitting your return to maximize the advantage.

Tax credits like these provide some of the most lucrative tax reductions available. A tax credit, unlike a tax deduction, decreases the amount of taxable income you report by directly lowering the amount of taxes you owe or increasing the amount of your refund.

Some accounts qualifying for the Saver’s Credit still enable contributions made today to contribute toward your 2021 total — at least through April 15 — if you didn’t max out your retirement plan in the calendar year 2021, as per Time.com.

If you contribute to a regular or Roth IRA before filing your tax return in spring, you can claim the Saver’s Credit and other eligible tax deductions, according to Steber. The Saver’s Tax Credit is a tax credit that helps eligible taxpayers to save money on their taxes by contributing to a qualified retirement plan.

Tax credits like these provide some of the most lucrative tax reductions available. A tax credit, unlike a tax deduction, decreases the amount of taxable income you report by directly lowering the amount of taxes you owe or increasing the amount of your refund.

How much should you expect?

Just keep in mind that the IRA contribution maximum for 2021 is $6,000 (or $7,000 if you’re 50 or older) and that you must earmark that money toward your 2021 contributions. According to the IRS, you can make 2021 IRA contributions through April 15, 2022.

The amount of the Saver’s Credit you’ll be eligible for is determined by how much you contributed to qualifying retirement plans in 2021 and your adjusted gross income as reported on your Form 1040.

The credit is dependent on your income and is equal to 50%, 20%, or 10% of your contribution, with a maximum qualifying contribution amount of $2,000 ($4,000 for couples filing jointly). As a result, if you qualify for the greatest amount, you can collect up to $1,000 (or $2,000 if married filing jointly) with the Saver’s Credit this year.

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