Many American taxpayers are overlooking a retirement incentive from the Internal Revenue Service that could boost refunds or help to reduce payments for federal taxes, according to a survey analysis by Transamerica Center for Retirement Studies.
The Saver’s Credit, also referred to by the IRS as the Retirement Savings Contributions Credit, is available to eligible taxpayers who are saving for retirement. It is a non-refundable tax credit that may be applied up to the first $2,000 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 accounts, which are tax-advantaged savings accounts for people who developed significant disabilities before their 26th birthday.
The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.
According to the 19th Annual Transamerica Retirement Survey, fewer than four in 10 U.S. workers (38%) know about the tax credit.
Transamerica Center for Retirement Studies president Catherine Collinson said the tax credit comes on top of the tax-advantaged treatment of saving for retirement in a 401(k), 403(b) or IRA. “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,” she said.
To be eligible to claim the Saver’s Credit, single tax filers must have an adjusted gross income of up to $32,000 in 2019 or $32,500 in 2020; those claiming head of a household must have an AGI limit of $48,000 in 2019 or $48,750 in 2020; and the AGI limit for those who are married and filing jointly is $64,000 in 2019 or $65,000 in 2020.
The filer cannot be a full-time student and cannot be claimed as a dependent on another person’s tax return.
The Savers Credit, Collison said, may meaningfully impact an individual’s long-term savings and even inspire non-savers to start saving for retirement. She added that individuals who are eligible but did not save last year can still contribute to an IRA until April 15 and may be able to claim the Saver’s Credit for the 2019 tax year..
Transamerica Center also pointed out that workers who are eligible to claim the Saver’s Credit often are eligible to take advantage of the IRS Free File program, another potentially overlooked opportunity. The Free File program offers federal income tax preparation software for free to tax filers with an AGI of $69,000 or less. Ten companies make their tax preparation software available through this program at www.irs.gov/FreeFile.