You still have time to contribute to retirement investment that can help you qualify for the tax credit to help you save up to $1000 and get you triple benefits if combined with a 401(k) or IRA. Here’s how.
This year, you can earn an extra tax credit worth up to $1000 by claiming the Retirement Savings Contributions Credit (Saver’s Credit). According to Next Advisor and Time magazine, this tax break allows you to recover a percentage of your contributions toward an eligible retirement savings account when you file your federal return.
Exactly how much of a tax credit you will qualify for, and your eligibility will vary depending on several factors. Your specific retirement plan you are contributing to, your adjusted gross income, your filing status, and some other factors.
The minimum requirement for eligibility is aged over 18, not a student, and not listed as dependent on someone else’s tax return.
However, there are income limits. Single filers can’t earn more than $34,000, head of household is limited to $51,000, married couples filing jointly are capped at $68,000.
Several different retirement plans are eligible for the saver’s credit. Traditional, Roth or SEP Ira; Elective salary deferral contributions to 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan; Contributions to a 501(c)(18)(D) plan; Elective salary deferral contributions to 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan; After-tax contributions you made to a retirement plan; Contributions to an Achieving a Better Life Experience (ABLE) account if you’re the beneficiary.
Don’t let the fact that we flipped the calendar over to the year 2022 make you think it’s too late to contribute. Some types of retirement accounts allow you to make contributions for 2021 up until April 15, 2022.
According to the IRS, you can make 2021 IRA (traditional, Roth, SEP) contributions until April 15, 2022.
If you are making your contribution toward your 2021 tax year, make sure to designate the money as such.
Remember that not every retirement account will allow you to make donations past the end of the calendar year. 401(k) retirement accounts have a deadline of December 31, 2021. Any contributions made beginning on January 1, 2022, and onward will apply to the tax year 2022.
Traditional and Roth IRA contribution limit for 2021: Age 49 and under $6000; age 50 and older $7000.
SEP-IRA contribution limit for 2021: 25% of the employee’s compensation, or $58,000.
A SEP-IRA refers to Simplified Employee Pension (SEP) plans, allowing employers to set aside money in retirement accounts for themselves and their employees. It is also often a better choice for self-employed persons than traditional or Roth IRAs since you can contribute up to 25 percent of your compensation or $58,000 in 2021. In contrast, a traditional or Roth will limit you to only $6000 or $7000, depending on your age.