Savvy Senior: The tax credit that lets you double-dip on retirement savings

DEAR SAVVY SENIOR: What can you tell me about the retirement saver’s tax credit?

At age 60, I’m looking for ways to boost my retirement savings beyond my 401(k) plan and have heard this may be a smart way to do it.

— Need to Save

Dear Need: If your income is low to moderate and you participate in your employer-sponsored retirement plan or an IRA, the “Saver’s Credit” (also known as the Retirement Savings Contribution Credit) is a tool that can boost your retirement savings.

If you contribute to a retirement-savings account like a traditional or Roth IRA, myRA, 401(k), 403(b), 457, federal employees’ Thrift Savings Plan, Simplified Employee Pension or SIMPLE plan, the Saver’s Credit will allow you to claim 10, 20 or 50 percent of your contribution up to $2,000 per year for singles or $4,000 for couples.

This valuable tax credit can be claimed in addition to the tax deduction you get for saving in your traditional retirement accounts.

You must be at least 18 years old and not a full-time student and were not claimed as a dependent on someone else’s tax return. Your adjusted gross income in 2018 must have been $63,000 or less as a married couple filing jointly, $47,250 or less if filing as head of household, or $31,500 or less if you’re a single filer for the 10 percent credit. Income limits are adjusted annually.

To get the 50 percent credit, your income must be below $19,000 if you’re single, $28,500 if you’re filing as head of household, and $38,000 for couples in 2018.

The 20 percent credit rate applies to individuals earning between $19,001 and $20,500; for head of household filers it’s $28,501 to $30,750; and for couples it’s $38,001 to $41,000.

Let’s say you file your taxes as head of household and your adjusted gross income is $30,000. You contribute $2,000 to your 401(k) plan. Since your income puts you in the 20 percent bracket, and you’ve contributed the $2,000 maximum that can be considered for the credit, you are entitled to a $400 Saver’s Credit on your tax return.

The Saver’s Credit is in addition to any other tax benefits you get for your retirement contributions. So in the previous example, not only would you be entitled to a $400 credit, but you would also be able to exclude the $2,000 401(k) contribution from your taxable income. If you’re in the 15 percent tax bracket, this translates to an additional $300, for a total of $700.

To claim the Saver’s Credit, you will need to fill out Form 8880 (see IRS.gov/pub/irs-pdf/f8880.pdf) and attach it to your 1040, 1040A or 1040NR when you file your tax return. Don’t use the 1040EZ Form.

If you think that you would have qualified for the credit in previous years but didn’t claim it, you can file an amended return as far back as 2015 and still get the credits. A 2014 amended return is due by April 15, 2019. See IRS Form 1040X (IRS.gov/pub/irs-pdf/i1040x.pdf) on how to file an amended return.

And for more information on the Saver’s Credit, see IRS Publication 590-A “Contributions to Individual Retirement Arrangements” (IRS.gov/pub/irs-pdf/p590a.pdf).

You can also have these forms and publication mailed to you by calling 800-829-3676.

Jim Miller is a contributor to NBC-TV’s “Today” program and author of “The Savvy Senior.” Send your questions to Savvy Senior, P.O. Box 5443, Norman, OK 73070; or visit savvysenior.org.