During this presentation, Paul McEwan CPA, principal with Rea’s retirement plan services team, will walk through the tax credits available for new retirement plans—particularly who is eligible and how much is available. Then he will go further and look at what that really means for the business owner’s bottom line and how they make qualified retirement plans more attractive than the traditional alternatives….(read more)

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Learn About the New Retirement Plan Tax Credits Available

retirement planning is a crucial aspect of financial management, and the government has introduced new tax credits to encourage individuals to save more for their golden years. These new retirement plan tax credits provide additional incentives to individuals who contribute to retirement plans like Individual Retirement Accounts (IRAs) or 401(k) plans. Understanding these tax credits can help individuals make informed decisions about their retirement savings.

The Retirement Savers Credit, also known as the Saver’s Credit, is one of the primary new tax credits available for retirement plan contributors. This credit is designed to help low- to middle-income workers save for retirement by providing a tax credit of up to $1,000 per person or $2,000 for married couples filing jointly. The credit amount depends on the individual’s income level and filing status, with higher credits available for those with lower incomes.

To qualify for the Saver’s Credit, individuals must meet certain income requirements. As of 2021, the income limits for the credit are $33,000 for single filers, $49,500 for head of household, and $66,000 for married couples filing jointly. These income limits are subject to annual adjustments, so it is important to check the most recent guidelines.

Another tax credit available for retirement plan contributors is the Qualified Retirement Savings Contributions Credit, commonly known as the Retirement Savings Contributions Credit or the IRS Form 8880. It is similar to the Retirement Savers Credit but has different income thresholds and credit rates. This credit can reduce the individual’s tax liability by a certain percentage of their contribution to their retirement plan, up to a maximum credit amount.

The Retirement Savings Contributions Credit is available to those with adjusted gross incomes (AGIs) below the following thresholds for the tax year 2021: $33,000 for single filers, $38,500 for head of household, and $66,000 for married couples filing jointly. The credit rates range from 10% to 50%, depending on the individual’s AGI and filing status. The higher the income, the lower the credit rate. It is important to consult the IRS guidelines or seek professional advice to determine the specific credit rates applicable to your situation.

Both of these retirement plan tax credits can provide significant benefits to individuals who contribute to their retirement accounts. They can substantially reduce the individual’s tax liability, effectively boosting their retirement savings. It is essential to note that tax credits directly reduce the amount of tax owed, rather than just reducing taxable income. This makes them particularly valuable in terms of savings.

When considering these tax credits, it is important to remember that they are non-refundable. This means that they can only reduce or eliminate the tax owed but will not result in a refund if the tax liability is already zero. However, any unused credit can be carried forward and applied to future tax liabilities.

To claim these retirement plan tax credits, individuals must complete the appropriate tax forms. Form 8880 is used to claim the Retirement Savings Contributions Credit, while the Retirement Savers Credit is reported directly on the individual’s tax return.

In conclusion, the introduction of new retirement plan tax credits provides valuable incentives to encourage individuals to save for their future. The Retirement Savers Credit and the Retirement Savings Contributions Credit can significantly reduce individuals’ tax liabilities and boost their overall retirement savings. It is important to be aware of the specific income thresholds, credit rates, and annual adjustments to make the most of these tax credits. Consult the IRS guidelines or seek professional advice to ensure you are taking advantage of all the available benefits. Happy retirement planning!