Advanced Underwriting Consultants

Ask the Experts – December 17

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: Can you explain the Saver’s Tax Credit?

Answer: Under Code Section 25B, certain low- to mid-level earners may be eligible for a tax credit based on their elective contributions to an IRA or qualified plan.

To be eligible for the credit, the individual must meet certain income limits listed below. Additionally, the individual must be 18 year or older and cannot be a dependent or a student.

The credit is applied only with respect to the first $2,000 in contributions made, and the amount of the credit depends on the individual’s income level. In 2013, the credit can be calculated based on the following:

Amount of Credit

Single/separate filers

Joint filers

Head of Household

50% of first $2,000

$0 to $17,750

$0 to $35,500

$0 to $26,625

20% of first $2,000

$17,750 to $19,250

$35,500 to $38,500

$26,625 to $28,875

10% of first $2,000

$19,250 to $29,500

$38,501 to $59,000

$28,875 to $44,250

For example, consider a married couple jointly earning $59,000 in 2013. They each make elective contributions of $2,500 to their respective 401(k) plans. Since they’re in the 10-percent bracket, each of their first $2,000 in contributions earns a $200 tax credit, for a combined $400 credit between the pair.

Likewise, their son, who meets all the requirements for the credit, earns $17,000 on the year and contributes $2,000 to his IRA. He will receive a $1,000 tax credit because of this contribution.

Individuals can set up a new IRA or contribute money to an existing IRA by April 15, 2014, to receive the credit. However, elective deferrals from qualified plans must be made by the end of the current year.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.