Question

Desmond is 25 years old and he participates in his employer’s 401(k) plan. During the year, he contributed $3,000 to his 401(k) account. What is Desmond’s 2016 saver’s credit in each of the following alternative scenarios?
a) Desmond is not married and has no dependents. His AGI after deducting his 401(k) contribution is $34,000.
b) Desmond is not married and has no dependents. His AGI after deducting his 401(k) contribution is $17,500.
c) Desmond files as a head of household and has an AGI of $44,000.
d) Desmond and his wife file jointly and report an AGI of $30,000 for the year.

Answer 1

Answer: See explanation

Explanation:

The savers credit is mostly used to motivate taxpayers so that they'll contribute to their retirement plans.

a. Desmond is not married and has no dependents. His AGI after deducting his 401(k) contribution is $34,000.

In this case, there'll be no credit that's available for Desmond as he'll be all under files AGI and his maximum savers credit will be $0.

b) Desmond is not married and has no dependents. His AGI after deducting his 401(k) contribution is $17,500.

Since he's single and doesn't have dependents, and his AGI is $17500, therefore, the saver's credit of Desmond will be 50% of $2000 which will be:

= 50% × $2000.

= 0.5 × $2000

= $1000

c) Desmond files as a head of household and has an AGI of $44,000.

Here, his percentage of saver's credit will be 10% of $2000 because he AGI of $44,000 which falls between $30001 - $46125. Therefore savers income will be:

= 10% × $2000

= 0.1 × $2000

= $200

d) Desmond and his wife file jointly and report an AGI of $30,000 for the year.

Here, the saver's percentage used will be 50% of $2000 and this will be:

= 50% × $2000

= 0.5 × $2000

= $1000