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.
However, 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
Rules for the Retirement Savings Contributions Credit
In order to claim the credit, the IRS ² 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
● 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:
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
10% of contribution
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 CPA or Certified Financial Planner™.
¹ Transamerica Center for Retirement Studies, “Retirement Throughout the Ages: Expectations and Preparations of American Workers,” May 2015.
² IRS, “Retirement Savings Contributions Credit,” updated February 22, 2016.