Under the federal tax code, certain low- and middle-income workers are eligible for a tax credit, known as the Saver’s Credit, designed to reward them for contributing to their retirement plans.
The new tax law, the Tax Cuts and Jobs Act, provides that people will now be able to benefit from the credit when they contribute to ABLE accounts for people with special needs.
As we have previously discussed, Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014, creating a new savings vehicle for people with disabilities that preserves their eligibility for Medicaid, food stamps, and other means-tested programs while saving for disability related expenses.
Annual contributions to ABLE accounts are capped at $15,000. Of these contributions, a certain portion of the first $2,000 — $4,000 if the person is married and filing joint taxes — can be deducted via the Saver’s Credit, depending on the contributor’s income.
With the Saver’s Credit, people can receive a credit equivalent to 50, 20, or 10 percent of their annual contributions to Individual Retirement Accounts (IRAs), including both traditional or Roth IRAs, or employer-sponsored retirement plans — and now ABLE accounts as well — up to $2,000.
For 2018, individuals with adjusted gross incomes of less than $28,500, filing as the head of household, can receive a credit for 50 percent of their contributions. So, for example, if a person making $25,000 in adjusted gross income contributes $2,000 toward an ABLE account, she can receive a $1,000 credit on her tax return by claiming the Saver’s Credit. This figure drops to 20 percent if the person’s adjusted gross income is between $28,601 and $30,750, then to 10 percent if the person earns between $30,751 and $47,250. (All income figures are for 2018.) The credit is not available to people making an income above these amounts.
Anyone contributing to an ABLE account could potentially be eligible for the credit, although it is not available to people under age 18 or full-time students, as well as people who are listed as dependents on another person’s tax return.
The Saver’s Credit can be claimed by filling out IRS Form 8880, Credit for Qualified Retirement Savings Contributions. This form will be revised later in 2018 to reflect the new changes.