Some retirement savers may claim additional deductions at tax time

Some retirement savers may claim additional deductions at tax time

Many Americans know the benefits of saving for retirement, but few know that they have one particular incentive to save money for their golden years: savings credit.

The savings credit, formerly known as the retirement savings contribution credit, allows low- and middle-income tax filers to pay off in times of taxation.

Currently, savers can claim a maximum credit of $ 1,000 for single filers or up to 50% of $ 2,000 pension contributions for married couples filing together.

Savers with adjusted gross income of $ 19,750 or less ($ 39,500 for joint deposit) may be eligible for 50%. The percentage drops to 20% and 10% as income increases and completely exceeds $ 33,000 ($ 66,000 for couples).

Find more retirement news here.

A person may be eligible for contributions to the workplace pension plan or deposits to an individual retirement account before the tax filing deadline of December 31, 2021.

However, the saver’s credit is non-refundable, which means it can only reduce or eliminate the unpaid debit, making it difficult for those with little or no tax to pay to claim a claim. which is less. Common among income tax filers.

“Currently, the system does not offer everyone the same incentive to save,” said Shai Akbas, director of economic policy at the Bipartisan Policy Center.

According to the Bureau of Labor Statistics, in 2020, 33% of workers in the private sector did not have access to workplace pension plans, and those who worked part-time were less likely to have accounts provided by the ’employer.

he will offer [lower earners] An incentive to save and it does so very effectively.

Shai Aqabasi

Director of Economic Policy at the Bipartisan Policy Center

While many workers qualify for an IRA, low-income Americans are less likely to have an account, according to a Tax Policy Center analysis.

However, new proposals from House Democrats could expand access to pension plans while increasing saver credit with a $ 3.5 trillion budget.

The House Ways and Means Committee on Thursday approved a provision requiring companies without an employer-provided pension plan to automatically enroll employees in an IRA.

This measure can also improve the savings credit by making it refundable up to $ 500, which means that we can still benefit from the absence of tax payable. Savers will receive this matching payment as a deposit into their retirement account, which is different from the current law.

“He will offer [lower earners] An incentive to save, ”Akbas said. “And he does it very effectively.”

For the purpose of long-term retirement savings, matching funds may be readily available after deposits, depending on the offer. However, a person with a Roth IRA can still access contributions without taxes or penalties, Akbas said.

“This flexibility is very important, especially for low and middle income families who have critical needs,” he said.

The cost of Saver’s credit expansion is estimated at $ 23 billion from 2022 to 2031, according to the Joint Committee on Taxation Projects, with payments scheduled to begin in 2026.

.

LEAVE A REPLY

Please enter your comment!
Please enter your name here