It is important to know which tax credits you are eligible for so that you can minimize your tax burden. I always recommend that everyone speaks to their tax advisors to ensure that they are taking advantage of all the tax credits they are eligible for.
Charlotte, NC (PRWEB) January 15, 2014
Jim Hitt, CEO of American IRA-a national Self-Directed IRA provider, says "It is important to know which tax credits you are eligible for so that you can minimize your tax burden. I always recommend that everyone speaks to their tax advisors to ensure that they are taking advantage of all the tax credits they are eligible for."
Tax Credit for Contributions to Retirement Accounts
If an individual’s adjusted gross income (AGI) is below a certain amount, they may be eligible to receive a nonrefundable tax credit for contributions to their retirement accounts, thereby lessening the cost of making the contributions. This nonrefundable credit is referred to as the saver's tax credit (saver's credit), and can reduce an individual’s federal income tax on a dollar-for-dollar basis.
In order to be eligible for the savers credit, individuals must meet a few requirements. These include the following:
- They must be at least 18 years of age,
- They should not be a full-time student, and
- They must not be claimed as a dependent on someone else’s return.
In addition to these requirements, their AGI must not exceed certain amounts, and the amount of credit for which they are eligible is also subject to AGI limits. The saver's credit can be claimed by:
*Married couples filing jointly with incomes up to $59,000 in 2013 or $60,000 in 2014;
*Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
*Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014.
The dollar amount of credit is limited to $1,000 per individual, $2,000 for married couples.
Individuals may claim the credit for the following types of contributions:
*Pre-tax salary deferral contributions to 401(k), 403(b) annuity, eligible deferred compensation plan of a state or local government [457(b) or governmental 457 plan], SIMPLE IRAs and salary reduction SEPs (SARSEPs).
*Voluntary after-tax employee contributions to a qualified retirement plan or section 403(b) annuity. and
*Contributions to traditional IRAs and Roth IRAs.
Individuals can split the contribution among more than one of these accounts, or deposit the entire amount to one account.
Distributions Can Reduce the Saver's Credit
Certain distributions can reduce the contribution eligible for the saver's credit. These include any taxable distributions from a retirement plan or IRA:
*That is received during the year that the credit is claimed
*During the two preceding years, or
*During the period after the end of the year for which the credit is claimed and before the due date for filing their tax return for that year.
A distribution from a Roth IRA that is not rolled over is taken into account for this reduction, even if the distribution is not taxable.
How to Claim the Credit
The saver's credit is claimed by Filing IRS Form 8880 and following the instructions provided on the form. These include instructions on how to indicate the correct amount on Form 1040. Form 8880 must be attached to Form 1040 in order for the IRS to approve the claim.
Other Features and Benefits
Other features of the saver's credit include the following:
*It may be claimed for the same year that an individual claims a deduction for a traditional IRA contribution. For those eligible for the deduction, this means double benefits,
*It will not change the amount of their refundable tax credits, such as the earned-income-credit or the refundable amount of the child-tax-credit,
*The saver's credit for any year cannot exceed the amount of tax that they would otherwise pay (not counting any refundable credits or the adoption credit) in any year,
*Their tax liability is reduced to zero because of other nonrefundable credits, such as the Hope Scholarship Credit, they will not be entitled to the savers credit , and
Individuals can also use the saver's credit to offset both an alternative minimum tax liability and a regular income tax liability.
About American IRA, LLC:
American IRA, LLC was established in 2004 by James C. Hitt in Asheville, NC.
The mission of American IRA is to provide the highest level of customer service in the self-directed retirement industry. Mr. Hitt and his team have grown the company to over $300 million in assets under administration by educating the public that their self-directed IRA account can invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals and much more!
As a Self-Directed IRA administrator they are a neutral third party. They do not make any recommendations to any person or entity associated with investments of any type (including financial representatives, investment promoters or companies, or employees, agents or representatives associated with these firms). They are not responsible for and are not bound by any statements, representations, warranties or agreements made by any such person or entity and do not provide any recommendation on the quality profitability or reputability of any investment, individual or company. The term "they" refers to American IRA, located in Asheville, NC and Charlotte, NC.