For a change, the IRS has good news: it encourages saving for retirement by reducing your tax bill. Due to pandemic-related job losses last year, more taxpayers may qualify for the Savings loaneven if they are unaware of its existence.
The Savings loanalso known as Credit for retirement savings contributionscan help eligible taxpayers save for retirement through a qualified retirement plan such as a 401(k) or Individual Retirement account (IRA).
What is the Savings Loan?
The Credit for retirement savings contributions is a non-refundable tax credit for contributions to an employer-sponsored 401(k), 403(b), or similar retirement plan, traditional plan, or Roth IRA, or one POWER account opened by an eligible taxpayer.
The term “non-refundable” refers to the fact that the credit cannot exceed a person’s federal income tax for the year.
For single filers or individuals, the maximum credit is $1,000, and for married couples filing jointly, the maximum credit is $2,000.
Am I eligible for the Savings Loan?
The maximum Adjusted Gross Income (AGI) for single filers in 2021 and 2022 is $33,000 and $34,000, respectively. The maximum AGI for the head of household is $49,500 in 2021 and $51,000 in 2022. The maximum AGI for married couples filing jointly is $66,000 in 2021 and $68,000 in 2022.
You must be 18 or older on January 1, and you cannot be a full-time student or a dependent on someone else’s tax return. If you want to see if you qualify for the Saver’s Credit, use the IRS’ online tool.
How to apply for a savings loan
You must have contributed to a 401(k), 403(b), similar employer-sponsored retirement plan, or ABLE account in 2021 to be eligible for the savings credit.
Traditional and Roth IRA contributions are both eligible and you have until April 18, 2022 to make an IRA contribution for the 2021 tax year. The credit does not apply to rollover contributions.
Allow the IRS Free Files Program to help you file your federal taxes. Taxpayers with an AGI of $73,000 or less can use the eight program partners’ online tax preparation tools free of charge. More information is available at www.irs.gov/FreeFile.
Don’t forget that this valuable tax credit could help you reduce your federal tax bill or increase your refund. Check your eligibility, especially if you lost your job due to the pandemic in 2021.