The Saver‘s Credit: Don’t Leave This Tax Break on the Table

The Savers Credit

You probably know about the benefits of tax-deferred investment accounts. But did you know that there is a special IRS provision that potentially allows you to save money just for being a retirement saver? The so-called “saver’s credit,” formally known as the Retirement Savings Contributions Credit, permits certain low- to middle-income workers to claim a tax credit for making eligible contributions to an IRA or most qualified workplace retirement plans.

But this tax break is currently going largely untapped. According to a study by the nonprofit Transamerica Center for Retirement Studies, only about a third of U.S. workers are aware of the saver’s credit.1

The IRS Says …2

Here is a rundown on the basic rules governing the credit.

In order to claim the credit, the IRS requires that you:

  • Are at least 18 years old;
  • Are not a full-time student; AND
  • Cannot be claimed as a dependent on another person’s tax return.

Retirement plans eligible for the credit include:

  • Traditional or Roth IRAs
  • 401(k)s and 403(b)s
  • SIMPLE IRAs
  • SARSEPs
  • 501(c)(18) or governmental 457(b) plans
  • Voluntary after-tax employee contributions to qualified retirement and 403(b) plans.

The Amount You Can Claim

According to the IRS, “The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A).”

Here’s a breakdown for tax year 2016:

Credit rate Married filing jointly Head of household All other filers*
50% of contribution AGI not more than $37,000 AGI not more than $27,750 AGI not more than $18,500
20% of contribution $37,001-$40,000 $27,751-$30,000 $18,501-$20,000
10% of contribution $40,001-$61,500 $30,001-$46,125 $20,001-$30,750
0% of contribution more than $61,500 more than $46,125 more than $30,750

*Single, married filing separately, or qualifying widow(er).

To learn more about the saver’s credit visit the IRS website. For help shaping up your retirement planning and/or tax planning strategy contact your financial advisor.

1Source: Transamerica Center for Retirement Studies, “Retirement Throughout the Ages: Expectations and Preparations of American Workers,” May 2015.

2Source: IRS, “Retirement Savings Contributions Credit,” updated February 22, 2016.

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