The Saver’s Credit is available to eligible taxpayers who are saving for retirement through a qualified retirement plan at work or in an IRA, yet many are still unaware of it.
According to earlier survey findings from the Transamerica Center for Retirement Studies (TCRS), fewer than 4 in 10 U.S. workers (38%) know about the tax credit that may help them save for retirement. And part-time workers are even less likely to be aware of this tax credit, at only 29%.
Not surprisingly, nearly half of workers with a college degree (47%) are aware of the Saver’s Credit, compared to workers without a college degree, among whom only 33% are aware of the credit.
Moreover, it is those workers who are potentially eligible to claim the credit who are less aware of it. Workers with household income (HHI) less than $50,000 are the least likely to be aware of the Saver’s Credit (29%), followed by those with HHI from $50,000 to $99,000 (38%) and those with $100,000+ (45%).
The study further shows that more Millennials (42%) are aware of it compared to Baby Boomers (34%) or Generation X (33%). In addition, men are more likely to be aware of the Saver’s Credit (46%) than women (29%).
As a reminder, here are a few things that people who don’t get the Saver’s Credit often don’t “get.”
The Saver’s Credit is a non-refundable tax credit that may be applied up to the first $2,000 ($4,000 if married filing jointly) of voluntary contributions an eligible worker makes to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account. The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.
“On top of the tax-advantaged treatment of saving for retirement in a 401(k), 403(b) or IRA, the Saver’s Credit is an additional benefit that may reduce a worker’s federal taxes,” explains TCRS President Catherine Collinson. “Many eligible retirement savers could be confusing these two incentives, simply because the idea of a double tax benefit sounds too good to be true.”
Who Can Claim the Saver’s Credit?
The credit is available to workers ages 18 years or older who have contributed to 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account in the past year and meet the Adjusted Gross Income (AGI) requirements:
- Single tax filers with an AGI of up to $32,000 in 2019 or $32,500 in 2020 are eligible.
- For the head of a household, the AGI limit is $48,000 in 2019 or $48,750 in 2020.
- For those who are married and file a joint return, the AGI limit is $64,000 in 2019 or $65,000 in 2020.
Additionally, the filer cannot be a full-time student and cannot be claimed as a dependent on another person’s tax return.
Tips for Claiming
You only get credit if you file for it. If you are using tax preparation software to prepare your tax return, including those programs offered through the IRS Free File program, use Form 1040, Form 1040-SR, or Form 1040-NR.
- If your software has an interview process, be sure to answer questions about the Saver’s Credit, also referred to as the Retirement Savings Contributions Credit, or Credit for Qualified Retirement Savings Contributions.
- If you are preparing your tax return manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Schedule 3 (used with Forms 1040 and 1040-SR) or Form 1040-NR.
- If you are using a professional tax preparer, be sure to ask about the Saver’s Credit.
With tax season now upon us, make sure the participants you work with get “credit” for saving, and your plan sponsor clients are aware of it. Additionally, individuals who are eligible but did not save last year can still contribute to an IRA until April 15, 2020, and may be able to claim the Saver’s Credit for 2019.
Additional information about the Saver's Credit from the IRS is available here.
