You might be able to reduce your 2015 income tax bill by up to $2,000, thanks to a little-known federal tax break.
But many people who are eligible for this tax credit for retirement savers miss out on it, CNBC reports:
Fewer than 1 in 4 American workers who are eligible are aware of this tax break that can reduce or even eliminate your tax bill entirely. Even fewer Americans actually claim it.
According to the Internal Revenue Service, the Saver’s Credit is worth 10 percent, 20 percent or even 50 percent of your retirement plan contributions up to $2,000 (or $4,000 for married people filing joint tax returns).
Your eligibility — and the size of a break you will receive — depends largely on your income and tax filing status, however. To be eligible for the Saver’s Credit, you must:
- Be an adult who is not a full-time student and not claimed as a dependent on someone else’s tax return.
- Have an adjusted gross income of no more than $30,500 (or $61,000 for married people filing jointly; or $45,750 for people filing as heads of household.)
- Contribute to a certain type of retirement plan (see below).
The percentage of your retirement contributions eligible for the Saver’s Credit also depends on your income. Click the IRS link above for a breakdown.
CNBC reports that some people who are eligible for the credit might not be taking advantage of it because less than half of workers have a retirement plan through their employer.
But contributions to various types of retirement plans are eligible for the Saver’s Credit:
- Traditional IRA
- Roth IRA
- SIMPLE IRA
- Governmental 457(b) plan
Have you heard of the Saver’s Credit before? Let us know below or on Facebook.