The Saver’s Credit provides a nonrefundable tax credit for contributions made by eligible, low-income taxpayers to IRAs and qualified elective income deferrals. The plan provides incentives for lower income individuals to save for their retirement through available qualified plans. To qualify, the taxpayer must have reached the age of 18 by the close of the year and cannot be a full-time student or dependent of another.
The credit ranges from 10% to 50% of the first $2,000 contributed by each taxpayer to a qualified plan during the year. The credit gradually phases-out as a taxpayer’s modified AGI increases. The table below illustrates the phase-outs for 2017. The phase-outs are inflation adjusted from year to year; please call for the phase-outs for other than the year shown.
Modified AGI – Adjusted gross income is determined without regard to foreign and protectorate income exclusions or foreign housing exclusions.
The credit is nonrefundable and offsets alternative minimum tax liability as well as regular tax liability.
Example – Eric and Heather are married and filing a joint return. Eric contributed $3,000 through his 401(k) plan at work, and Heather contributed $500 to her IRA account. Their modified AGI for the year was $28,000. The credit is computed as follows:
|Eric’s 401(k) contribution was $3,000, but only the first $2,000 can be used||
|Heather’s IRA contribution was $500, so it can all be used||
|Total Qualifying contributions||
|Credit percentage for a Jt AGI of $28,000 from the table||