The Saver’s Credit is an Unbeatable Tax Benefit!

If you had the chance to put $350 into a savings account and have it immediately turn into $1,000, would you do it?

You have this chance if your family is low income and makes a contribution to any Individual Retirement Account (IRA) by April 15, 2016.

Saver's Credit - The Facts

This federal rule is called the Saver’s Credit. If you are single, you are eligible for this credit if your adjusted gross income is less than $30,500. If you are married your adjusted gross income must be less than $61,000. These are the limits for 2015.

The limits for 2016 are $30,750 (single) and $61,500 (married).

If you are eligible you can claim this credit by making a 2015 contribution (by April 15, 2016) to any IRA: it could be you spouse’s 401(k) or 403(b) plan. Or you can contribute to a Traditional IRA, Roth IRA, SIMPLE IRA or SEP IRA. To contribute to a SIMPLE IRA you must have set one up before October 1, 2015.

The tax credit is worth 10%, 20%, or 50% of your IRA contribution, up to a maximum $2,000 contribution. The amount of credit depends on how low your family income is.

Let’s look at an example of how this works.

Maria has an adjusted gross income of $17,500 in 2015. (Adjusted gross income is your business profit plus any adjustments on the front of Form 1040.) She contributes $1,000 into her 2015 Traditional IRA account in March 2015. Because her income is so low, she is entitled to a 50% tax credit on her contribution, or a $500 tax credit. That means her taxes will go down by $500.

In addition, her contribution is tax deductible and since she is in the low 15% tax bracket she will be able to reduce her taxable income by $1,000. This will save her another $150 in taxes. In the end, Maria contributed $1,000 into her IRA and reduced her taxes by $650. Yes, she gets a double tax benefit from her contribution! This is an unbeatable deal!

If Maria had an adjusted gross income of $20,000 she would receive a 10% Saver’s Credit ($100), plus a $150 tax deduction, for a total of $250 tax savings. If she made a contribution to a Roth IRA she would only get the $100 Saver’s Credit since contributions to a Roth IRA are not tax deductible.

How To Claim Your Saver's Credit?

To claim your Saver’s Credit fill out Form 8880 Credit for Qualified Retirement Savings Contributions and carry the credit forward to Form 1040, line 50.

If you made an IRA contribution in the past three years and were income-eligible for the Saver’s Credit you can amend your taxes using IRS Form 1040X and get a refund.

If your income is low enough to qualify for this credit, I strongly urge you to take advantage of the Saver’s Tax Credit.

Now, if you are not eligible to get the Saver’s Credit, you can still the tax benefit of contributing to an IRA before April 15th.

To set up an IRA contact your local bank, a credit union, mutual fund or financial planner.

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Tom Copeland

I've been the nation's leading trainer, author, and advocate on the business of family child care since 1981. I'm a licensed attorney and have presented hundreds of business workshops for family child care providers across the country. I answer thousands of calls and emails each year to help providers, tax professionals and trainers understand complex business and tax issues. Call me at 651-280-5991. Email me at Visit me on Facebook. From 1981 to 2009 I worked at Resources for Child Caring in Minnesota (now called Think Small), where I was director of Redleaf National Institute for 15 years. I've written nine books on the business of family child care published by Redleaf Press, a division of Resources for Child Caring. I was on the board of directors of First Children's Finance, a non-profit organization providing low interest loans and consulting and technical assistance to help family child care providers suceed as a business. They operate in Minnesota, Iowa, Michigan, North and South Dakota, Kansas, Missouri, and Texas. Here are some YouTube videos of me talking about my work with this organization and the business of family child care. I graduated from Macalester College (BA) in 1972 and from William Mitchell College of Law (JD) in 1980. I live in St. Paul, Minnesota with my wife Diane and two cats, Duke and Ella.