New Incentive to Save for Retirement!
Taxpayers Can Now Receive a Credit when Saving for Retirement!
Shout loudly out to the hilltops! We have important good news for your clients. Our sweet and considerate Uncle Sam wants us to encourage our clients to save for retirement. He is so motivated that he is offering them a tax credit! You read that right, taxpayers can receive a tax credit for saving for retirement. Let me introduce the Federal Saver’s Credit.
Let me repeat that in more detail. Your clients can receive a federal tax credit for saving their very own money into their very own account. Be sure to remind your clients how valuable you are by sharing money-saving and wealth-growing legislation like the Federal Retirement Savings Credit. Now, let’s discuss the accounts that qualify your clients for this credit.
Yes, you get to tell your clients about how you will brilliantly save them money on their taxes if they save more for retirement. It’s important to remind clients how much work you put in during the offseason learning tax law and procedures. That’s a noble enough task. We tax preparers get to help people.
What is the Federal Saver’s Credit?
The Federal Retirement Savings Credit is a tax credit worth up to $1,000 ($2,000 for MFJ), for mid- and low-income taxpayers who contribute to a retirement account.
Who is Eligible?
Taxpayers are eligible for the Federal Retirement Savings Credit if age 18 or older. Your clients will not qualify if full-time students. Also, taxpayers cannot be claimed as a dependent on another person’s tax return.
Adjusted Gross Income Caps or Thresholds
There are adjusted gross income (AGI) caps the IRS sets each year. Clients aren’t eligible for the saver’s credit if their adjusted gross income (AGI), is above any of these thresholds shown below:
$65,000 as a married joint filer in 2020; $66,000 in 2021
$48,750 as a head of household filer in 2020; $49,500 in 2021
$32,500 as any other filing status in 2020; $33,000 in 2021
What Accounts are Eligible for the Credit?
Client contributions to an employer retirement plan or an individual retirement arrangement (IRA) both are eligible for the Federal Saver’s Credit. or if you contribute to an Achieving a Better Life Experience (ABLE) account of which you are the designated beneficiary. In all of the mentioned examples, you must be the account holder. With ABLE accounts the account holder is referred to as the Beneficiary.
When we are discussing retirement savings, we do not depend on the potential benefits of Social Security. When considering how to fund our retirement, let’s just pretend that Social Security will not be available. I know. I know. A lot of us pay into it. Just for the sake of completely covering our backsides, let’s work from my negative assumption. That assumption creates the conclusion that we must all save and prepare for our own retirement. That is the most surefire approach to take.