The Tax Credit You Could Be Overlooking If You Have a Retirement Fund

Retirement funds are primarily designed to secure your financial future, but there’s a lesser-known way they can benefit you today. Believe it or not, the IRS actively encourages Americans to save for retirement.

This encouragement comes in the form of the Retirement Savings Contributions Credit, commonly referred to as the Saver’s Credit. Designed to reward taxpayers for contributing to retirement accounts, this credit provides financial relief while helping secure long-term financial stability.

With only 54.4% of American households utilizing dedicated retirement accounts, the government is concerned about the future of retirement savings. This concern is amplified when considering the average Social Security benefit in 2024 was only $1,920 per month.

To promote saving, the IRS offers various tax credits, including those for purchasing EVs. Among these, the Saver’s Credit stands out as a way to reduce the amount you owe during tax season while contributing to a better financial future.

What is the Saver’s Credit?

The Saver’s Credit was introduced in 2001 to incentivize contributions to qualified retirement accounts. It is particularly aimed at low- and moderate-income households, offering a percentage of contributions as a tax credit.

The credit amount ranges from 10% to 50% of your contributions, depending on your Adjusted Gross Income (AGI) and filing status.

How the Saver’s Credit Works

The percentage of the Saver’s Credit is determined based on your AGI:

Eligible accounts include traditional and Roth IRAs, as well as 401(k), 403(b), and 457(b) plans. However, rollover contributions do not count toward the credit. To maximize your benefits, ensure you make contributions to these accounts and claim the credit when filing your taxes.

Eligibility Criteria for the Saver’s Credit

Not all individuals with retirement accounts qualify for this credit. The IRS sets specific requirements to ensure it targets those with low-to-moderate incomes. Below are the main criteria for eligibility:

1. Income Limits
   • Married couples with an AGI over $76,500 are not eligible.
   • Heads of household exceeding $57,375 are excluded.
   • Single filers or others with an AGI over $38,250 do not qualify.
2. Filing Status and Dependents
   • Dependents claimed on someone else’s tax return cannot claim this credit.
   • Students and individuals under 18 years old are also ineligible.
3. Required Documentation
   To claim the Saver’s Credit, you must complete IRS Form 8880. This form not only calculates the credit amount based on your AGI and filing status but is also essential for filing your claim.

Maximizing the Saver’s Credit

The Saver’s Credit is an often-overlooked tax advantage that can significantly lower your tax liability while helping you secure your future. Here are a few key steps to maximize its benefits:

• Contribute Regularly: Make consistent contributions to eligible accounts such as IRAs, 401(k)s, or 403(b)s.
• Check Income Eligibility: Ensure your AGI falls within the qualifying range for your filing status.
• Claim the Credit: File IRS Form 8880 alongside your tax return to calculate and claim the credit.
• Avoid Missed Opportunities: If you qualify, don’t overlook this credit — the IRS won’t notify you if you miss claiming it.

The Saver’s Credit is an excellent way to not only prepare for your financial future but also reduce your current tax liability. By contributing to qualified retirement accounts and meeting the eligibility requirements, you can take advantage of a government incentive designed to encourage savings.

Don’t overlook this valuable credit—it’s a simple step toward financial security that can also provide immediate tax benefits. Ensure you claim it by completing the necessary documentation during tax season.

FAQs

What types of accounts qualify for the Saver’s Credit?

Eligible accounts include traditional and Roth IRAs, as well as 401(k), 403(b), and 457(b) plans. Contributions to rollover accounts do not qualify.

Can students or dependents claim the Saver’s Credit?

No, students and dependents claimed on another person’s tax return are not eligible for this credit.

How much can I receive through the Saver’s Credit?

The credit ranges from 10% to 50% of your contributions, depending on your AGI and filing status. For example, a married couple earning $45,000 could receive up to $2,000 in credit.