The IRS has reminded taxpayers of the possibility of taking advantage of a tax credit. Not only will you benefit from making contributions to your IRA account, but you will also enjoy a fantastic tax credit.
If you do not have an IRA retirement plan, you can also claim this IRS tax credit if you have an employer-sponsored retirement plan. Therefore, there are no excuses, start saving money and making contributions.
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The IRS refers to it as the Retirement Savings Contributions Credit. Maybe, most taxpayers know it as the Saver’s Credit. The Internal Revenue Service also reminds taxpayers of the importance of checking out the cost of living adjustments for IRAS and other retirement plans. In this way, you can aim to max it out.
IRS tax credit eligibility is not the same as for stimulus checks
In order to be eligible for the Saver’s Credit, you must be 18 years old. Therefore, if you are younger you cannot receive this money. Remember that students do not qualify for this tax credit either.
Another important eligibility requirement is the fact that no one claimed you as a dependent on another person’s return. By now, some of you may be wondering what a student is for the IRS.
The Internal Revenue Service makes it clear that you were a student if, during any part of 5 calendar months of the tax year, you were a full-time student. So, if you were enrolled full-time at school for that time, you cannot claim it.
The IRS can also consider you a student if you took a full-time, on-farm training course. It may have been given by a local government agency, a county, a school, or even the state. Mechanical, trade, and technical schools are included too.
The amount of the tax credit is smaller than a stimulus check
The IRS informs that it depends on your Adjusted Gross Income on Form 1040. So, it could be 50%, 20%, or just 10% of the annual contributions you make to a traditional Roth IRA.
It is more than likely that you understand it better with a simple and possible real example. Anyway, the maximum credit is $1,000. Married couples may get up to $2,000 from this tax credit.
A person has earnings of $41,000 during the year and the spouse has no earnings at all. If the person who is working makes contributions worth $2,000 to the IRA account, this person can claim a 50% credit of $1,000.
Make sure you check the Adjusted Gross Income (AGI) rates for the 2023 Saver’s Credit. It can be 50% of your contribution if your AGI is not more than $43,500 (married filing jointly) or $21,750 (single filers).