Rafael and Lucy Gonzalez, married taxpayers, each contribute $3,550 to their respective § 401(k) plans offered through their employers. The AGI reported on the couple's joint return is $52,100. Determine their credit for retirement plan contributions (the Saver’s Credit).
As a result, they may claim a credit for their retirement plan contributions of $
Homework Answers
To determine the Saver's Credit for retirement plan contributions for Rafael and Lucy Gonzalez, we need to consider their filing status, adjusted gross income (AGI), and the amount contributed to their retirement plans.
The Saver's Credit is a non-refundable tax credit that provides an incentive for low- to moderate-income individuals and couples to save for retirement. The credit amount depends on the taxpayer's filing status, AGI, and the contribution amount to qualified retirement plans.
For the 2021 tax year, the Saver's Credit is calculated as a percentage of the retirement plan contributions, subject to certain income limitations. The credit percentages range from 10% to 50% of the contribution amount, with the percentage decreasing as income increases.
Based on the information provided:
Filing status: Married (joint return)
AGI: $52,100
Contribution to § 401(k) plans: $3,550 each (total $7,100)
To determine their Saver's Credit, we need to check the income limits for their filing status and consult the applicable credit rate table for the 2021 tax year.
For married couples filing jointly, the income limits for the Saver's Credit in 2021 are as follows:
AGI up to $39,500: 50% credit
AGI between $39,501 and $43,000: 20% credit
AGI between $43,001 and $66,000: 10% credit
Since the Gonzalezes' AGI of $52,100 falls within the income range of $43,001 to $66,000, they qualify for a 10% credit on their retirement plan contributions.
To calculate their Saver's Credit:
Determine the credit rate applicable to their AGI: 10%
Calculate the credit amount: 10% of their total contributions ($7,100) Saver's Credit = 10% × $7,100 Saver's Credit = $710
Therefore, Rafael and Lucy Gonzalez are eligible for a Saver's Credit of $710 for their retirement plan contributions.
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