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Tax Time? 3 Potential Tax Breaks for Savers

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What we’ll cover:

  • If you’ve contributed to an IRA or HSA, you might be able to claim a deduction on your tax return
  • Contributions to traditional IRAs are generally deductible, up to $6,000 for 2019
  • Post-tax contributions to HSAs are deductible, up to $3,500 for individuals in 2019  

If you’ve been a good saver all year round, tax season could be a rewarding time. That’s because the federal government provides tax breaks, in the form of deductions and credits, for certain types of savings and retirement contributions. Consider it as another perk to saving for retirement

As you (or your tax preparer) get ready to file your personal tax return, don’t forget to check whether you’re eligible to claim these three tax breaks. 

IRA deduction

While contributions to a Roth IRA are not deductible, contributions to a traditional IRA might be. For the 2019 tax year, the IRA contribution limit is $6,000 (or $7,000 for individuals who are 50 or older). 

If you’ve maximized your IRA contribution in 2019, you can deduct the full amount on your personal tax return, so long as you (or your spouse) are not covered by a retirement plan at work. 

However, if you or your spouse are covered by a plan at work, your deduction may be limited or you may not even qualify for one. The IRA deduction limits are based on your filing status and modified adjusted gross income (often referred to as “modified AGI” or “MAGI”). For instance, a single filer with a modified AGI of $74,000 or more in 2019 would not be allowed to claim the deduction at all. 

For the most up-to-date eligibility rules and limitations for the IRA deduction, consult the IRS website.  

HSA deduction

In general, if you contribute money directly to your Health Savings Account (HSA) – that is, not through an employer who contribute on your behalf or with pre-tax dollars – you may be able to deduct your contributions. 

For the 2019 tax year, the maximum contribution to an HSA is $3,500 ($7,000 for an individual with family coverage). If you’re eligible for the HSA deduction and you’ve maximized your contribution, you could deduct up to the contribution limit on your tax return. What if you could only contribute $1,000? You would then only be able to claim a $1,000 deduction. You get the idea. 

Keep in mind though that not everyone can open up an HSA. To qualify for an account, you have to meet four requirements according to the IRS:

  • You have to be covered under a high-deductible health plan
  • You can’t have any other health coverage except for those allowed by the IRS (see Other Health Coverage)
  • You can’t be enrolled in Medicare
  • You can’t be claimed as an dependent on another person’s tax return

Saver’s Credit

Remember playing the “which-of-these-does-not-belong” game when we were little kids? 

The Saver’s Credit definitely falls into that category on this list of tax breaks because of its strict qualifying income limits. If you’re a single filer with an adjusted gross income (AGI) of more than $32,000 in 2019, you’re not eligible for the credit. 

Even though you may not qualify for it, keep the Saver’s Credit in the back of your mind. It’s a tax nugget you could share with the young adults in your life who might not be raking in the Benjamins just yet. 

Generally, to be eligible for the credit, you must meet the following criteria:

  • You are age 18 or older
  • You’re not a full-time student
  • You contribute to an employer-sponsored retirement plan or IRA
  • Your AGI does not exceed a certain amount
  • You cannot be claimed as a dependent on someone else’s return

The credit rate is based on both your filing status and AGI. It can be anywhere between 10% to 50% of your retirement contribution. But the maximum contribution amount that may qualify for the credit is $2,000 (or $4,000 for joint filers). This means that the maximum value of the credit tops out at $1,000 ($2,000 for those who are married filing jointly). 

Here are the rates and income limits for the Saver’s Credit in 2019:

Married Filing Jointly

Head of Household

Signle / Married Filing Separately / Qualifying Widow(er)

Credit Rate: 50%

AGI not more than $38,500

AGI not more than $28,875

AGI not more than $19,250

Credit Rate: 20%

$38,501 - $41,500

$28,876 - $31,125

$19,251 - $20,750

Credit Rate: 10%

$41,501 - $64,000

$31,126 - $48,000

$20,751 - $32,000

Credit Rate: 0%

more than $64,000

more than $48,000

more than $32,000

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This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.