Retirement can affect someone’s tax situation. Anyone who has retired recently — or who plans to retire soon — can visit IRS.gov for information that can help them prepare for filing their taxes next year. (more…)
Many taxpayers may need to take out money early from their Individual Retirement Account or retirement plan. Doing so, however, can trigger an additional tax on early withdrawals. They would owe this tax on top of other income tax they may have to pay. (more…)
Once a relatively obscure concept, income in respect of a decedent (IRD) can create a surprisingly high tax bill for those who inherit certain types of property, such as IRAs or other retirement plans. Fortunately, there are ways to minimize or even eliminate the IRD tax bite. (more…)
The IRS reminds taxpayers that they still have time to contribute to an IRA for 2016 and, in many cases, qualify for a deduction or even a tax credit. Available since the mid 70s, individual retirement arrangements (IRAs) enable employees and the self-employed to save for retirement. Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable.
Are you in your 50s or 60s and thinking more about retirement? If so, and you’re still not completely comfortable with the size of your nest egg, don’t forget about “catch-up” contributions. These are additional amounts beyond the regular annual limits that workers age 50 or older can contribute to certain retirement accounts. (more…)
Under Code Sec. 25B, a low-income taxpayer can claim a tax credit for a portion of the amounts contributed to an individual retirement account, 401(k) plan, or other retirement plan. A credit is allowed for up to $2,000 of contributions to qualified retirement savings plans. The maximum credit is $1,000 for individuals and $2,000 for married couples. A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. However, the percentage of contributions for which the credit is allowed decreases depending on the individual’s adjusted gross income.
The credit is also reduced for any distributions from qualified retirement plans that the taxpayer, or the taxpayer’s spouse if they file a joint return, has received during the tax year, the previous two tax years, or the period of the following year before the due date for the return on which the return is filed, including extensions. A taxpayer can claim the credit in addition to any other deduction or exclusion that would apply to the contribution. Contributions for which the credit is claimed are treated as after-tax contributions and can be included in the taxpayer’s investment in the contract, thus reducing the amount of income included in distributions from the retirement plan.
The saver’s credit is available for any individual, other than a full-time student, who is age 18 or over at the close of the tax year, provided the individual is not claimed as a dependent for the same tax year. The credit is not available for single taxpayers or married taxpayers filing separately with adjusted gross income (AGI) more than $30,000 for 2014, and $30,500 for 2015; heads of households with AGI more than $45,000 for 2014, $45,750 for 2015; or married taxpayers filing jointly with AGI more than $60,000 for 2014, $61,000 for 2015.
The AGI limits are adjusted annually for inflation. The AGI amounts for single taxpayers are one-half the indexed amounts for married taxpayers filing a joint return, and the limits for heads of households are three-fourths the indexed amounts for married taxpayers filing a joint return. These amounts are adjusted for inflation.
Amount of Credit
The saver’s credit is equal to a percentage, ranging from 50 percent to 0, depending on adjusted gross income (AGI), of the individual’s qualified retirement savings contributions for the tax year, up to a maximum amount of contributions of $2,000. For married taxpayers filing jointly, contributions up to $2,000 a year for each spouse can give rise to the saver’s credit.
Claiming the Credit
Taxpayers claim the saver’s credit on Form 8880, Credit for Qualified Retirement Savings Contributions, and attach the form to their Form 1040 or 1040A. The instructions for the form indicate how to calculate the credit. The saver’s credit is a non-refundable personal credit. Thus, the amount of the credit is limited by the taxpayer’s tax liability. Taxpayers can also take a projected saver’s credit into account in figuring the allowable number of withholding allowances claimed on Form W-4, Employee’s Withholding Allowance Certificate.