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Low-Income Retirement Plan Contribution Credit (LO 7.9) George and Amal file a joint return in 2019...

Low-Income Retirement Plan Contribution Credit (LO 7.9)

George and Amal file a joint return in 2019 and have AGI of $39,800. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is the amount of their Saver’s Credit?
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Answer #1

Saver's Credit:

  • The Qualified Retirement Savings Contribution Credit, often abbreviated as the "saver's credit," encourages low-income individuals to contribute to their qualified retirement plans by ultimately reducing their overall tax obligations.
  • As of 2019, the saver's credit is available to single taxpayers with maximum incomes of $32,000, heads of household with maximum incomes of $48,000, and married couples filing jointly with maximum incomes of $64,000.
  • Married taxpayers filing jointly may receive a credit worth 20% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $38,501 and $41,500.

Based on the above, since the AGI of George and Amal is $ 39,800 saver's credit is as follows:

  • Contribution: $ 1600 + $ 1600 = $3200 (George and Amal make a contribution of $ 1600 each)
  • Saver's Credit: $ 3200 *20% = $ 640
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