The Saver’s Credit: An overlooked tax boost.

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Need help saving for retirement? The Saver’s Credit can be a big help. Millions of taxpayers are eligible for this tax credit. Far too few of them know it.

According to a new survey from the Transamerica Center for Retirement Studies, just 48 percent of us know about the Saver’s Credit, also known as the Retirement Savings Contributions Credit.

“The Saver’s Credit may help make it easier for people to save because it lowers their federal income tax,” says Catherine Collison, the CEO and president of the Transamerica Institute.

It’s a non-refundable tax credit that could be applied up to the first $2,000 of contributions made to a traditional or Roth IRA, an ABLE account (for people with disabilities), or a 401(k), 403(b) or similar employer-sponsored plan.

“Non-refundable” means that the credit can’t be more than a filer’s federal income tax that year.  The maximum is $1,000 for individual filers and $2,000 for married couples if they file jointly. 

Eligibility is based on age, dependency status and income. More people might be eligible for the Saver’s Credit this year due to pandemic-related employment issues. Here’s how to find out if you’re eligible. 

 

You must be 18 or older, not a full-time student and not claimed as a dependent on someone else’s taxes. As noted, you must also have contributed to a retirement plan (see above). And you must meet the adjusted gross income guidelines:

  • Single filers: No more than $33,000 AGI in 2021 and $34,000 in 2022
  • Heads of households: No more than $49,500 AGI in 2021 and $51,000 in 2022
  • Married filing jointly: No more than $66,000 AGI in 2021 and $68,000 in 2022  

“Saving for retirement can be difficult in the best of times,” Collinson notes, “but even harder for many during the pandemic and challenging economy.”

Help with the Saver’s Credit

The TCRS offers these tips for tax filers:

The Internal Revenue Service has an online tool that can help you find out whether you’ll be eligible.

If you do a paper tax return, fill out Form 8880 (“Credit for Qualified Retirement Savings Contributions”) to figure out how much you can claim. That amount gets reported on Line 4 on Schedule 3, which is used with Forms 1040, 1040-SR, and 1040-NR.  

Using an online tax-prep tool? Look for the “Retirement Savings Contributions Credit” or the “Credit for Qualified Retirement Savings Contributions.” 

If you plan to visit a professional tax preparer, bring up the Saver’s Credit. (One would hope the tax pro would bring it up first.)

Finally, check out the IRS Free File program, designed for filers with AGIs of $73,000 or less. Available in English and Spanish, this program checks the math and e-files for you on an IRS partner site; in some cases, it will also do state taxes.

And if you didn’t contribute to any of those plans last year? You can contribute up to April 18 for tax year 2021, which might make you eligible for the Saver’s Credit.

Please share this information with family and friends you think could benefit.

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2 thoughts on “The Saver’s Credit: An overlooked tax boost.”

  1. Unable to take this credit, due to husband taking distributions from his IRA, even though I am still working and contributing to y own retirement accounts. This info gets overlooked when eligibility is discussed.

    Reply

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