a piano teacher in Knoxville, Tenn., Jeannine Hines has
almost nothing saved for retirement even though sheís
60. So she was relieved when a financial planner told
her Uncle Sam would give her money to save.
a little-known tax credit, Hines will get $766 from
Uncle Sam instead of having to pay that to the
government for 2015 taxes. To get the sum, however,
financial planner Rose Swanger explained there were
strings attached: Hines had to put money into an IRA or
Roth IRA and claim the saverís credit on her 1040 tax
was fine with Hines, since sheís been saving
diligently for the last four years ó trying to do all
she can to catch up for lost time.
self-employed, and paying your own medical and your
taxes, itís very tough to save," she said.
"$766 is valuable on a limited income."
Americans miss out on the saverís credit because they
donít know itís available. But it is aimed at making
it easier for people with low or moderate incomes to
stash away something for the future. They can get a
maximum of $1,000 back from the government, depending on
their income and how much money they put into a
IRAs, people who put money into 401(k)s or any
retirement savings plan at work can also get help with
saving if they claim the credit, provided their income
is low enough. Small-business owners can use SEP IRAs or
SIMPLE IRAs and claim the saverís credit.
Hines is using the saverís credit to help catch up
after years of missing out on saving, financial planners
are pushing millennials to use the government money
while young so they donít have to save frantically
just before retirement. Financial planner Sophia Bera of
Gen Y Planning tries to talk millennials with modest
incomes into putting at least $2,000 into retirement
accounts each year so they can get the maximum credit of
means saving about $38.50 a week. If thatís too hefty,
a smaller amount will also earn a saverís credit. It
just wonít be as large as if a person stashed away the
full $2,000 a year. According to the Internal Revenue
Service, the average credit for couples was $216 in
2011; for singles it was $128.
recently worked with a 25-year-old who had inherited
$25,000 from his grandfather, which gave him the ability
to save more than ordinarily would have been comfortable
on his $25,000 salary. He had no 401(k) at work, so Bera
instructed him to put $5,500 into a Roth IRA for 2015
and another $5,500 for 2016. He will get back $200 for
each year from the saverís credit based on his income
and the fact that he put at least the $2,000 maximum
into a retirement saving account.
he keeps putting $5,500 away for retirement every year
and earns on average 7 percent a year in a balanced
mutual fund of stocks and bonds, he should have more
than $1.3 million by retirement. If he had merely saved
the $2,000 maximum for the saverís credit, he would
have arrived at retirement with $494,000 ó a nice sum,
but far less than $5,500 a year earned.
saverís credit is available to individuals with
adjustable gross income less than $30,500 and couples up
to $61,000. At those maximum levels of income, however,
taxpayers only get 10 percent of what they save. With a
$2,000 ceiling on savings, the 10 percent saverís
credit amounts to $200, or the amount Beraís
25-year-old client received for the first $2,000 of his
total $5,500 Roth IRA contribution.
get the maximum credit of $1,000, or 50 percent of a
maximum $2,000 investment in an IRA or 401(k), singles
will qualify with incomes up to $18,250. See irs.gov and
use Form 8880 to claim the credit.
qualified for the full $1,000 credit because she and her
husband combined had an adjustable gross income of about
$19,000 ó well below the $36,500 couples can have for
the maximum credit. But since the government doesnít
give back more than a taxpayer owes each year, she
received $766 from the credit.
other words, the government gave her back $766 so she
could save at least $2,000 for retirement. Instead of
having to come up with a fresh $2,000 in cash to save,
the credit paid some and she only had to come up with
$1,234 out of pocket.
who find themselves close to the maximum income cutoffs
shouldnít give up on the saverís credit without
first trying this technique: Lower your income below the
cutoff by contributing to a taxable traditional IRA.
Then apply the saverís credit.