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I am always on the lookout for tax breaks, and the best tax credit that I have ever found actually saved me money just for saving money. It's a little known tax break called the Saver's Credit, and it saved me $2,000 last year.
The Saver's Credit Defined
Basically, the Saver's Credit is a way that the government makes it easier for those who wish to save for retirement to do so. This is done by them giving back up to $1,000 for a single filer and up to $2,000 for a married couple filing joint. All that needs to be done to take advantage of this tax credit is to actually contribute to a qualifying IRA or other retirement account, such as an employer sponsored 401(k).
Rules, Rules
Of course the government isn't going to give this money away without some rules and regulations. First of all, there are limits on the household income levels. This varies from $56,500 for a married couple to $28,250 for single people. The more you earn the less of a credit you get and there is a table on Form 8880 that explains it all. Additionally, the max that can be credited is $1,000 for single filers and $2,000 for married. So, whether the qualification is for 50% or 10%, it maxes out at $1,000 or $2,000. In other words, if you contributed $3,000 and are single, you are tapped out at $1,000. It does get a bit more complicated for certain circumstances, but this is explained in greater detail at IRS.gov. For the most part though, the Saver's Credit is pretty cut and dried.
Credit Not Deduction
The best part about the Saver's Credit is that it is not a deduction, but rather a dollar for dollar tax credit. So, in my case, my wife and I met all the necessary criteria and were able to get the full $2,000 tax credit. This in turn lowered the amount of money that I had to pay to the IRS. While it didn't knock out my entire tax bill, it was not a credit I had been planning on and therefore it was literally like finding an extra $2,000. In essence it was like the government gave me money back just because I was saving for my retirement.
One-Time Only
Unfortunately, this credit is a one-time option. Since my wife and I have already taken our credit that means we can never take it again.
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