Many taxpayers don't know they qualify for the Saver's Credit

Millions of Americans saving for retirement are eligible for a tax break known as the Saver’s Credit. However, more than half of them are not aware that it is available.

“Saving for retirement can be difficult in the best of times but even harder for many during the pandemic and challenging economy,” said Catherine Collinson, CEO and president of Transamerica Institute. “The Saver’s Credit may help make it easier for people to save, because it lowers their federal income tax.”

The Saver’s Credit is a non-refundable tax credit that may be applied up to the first $2,000 of voluntary contributions that an eligible taxpayer makes to a 401(k), 403(b) or similar employer-sponsored retirement plan; a traditional or Roth IRA; or an ABLE account. In this context, “non-refundable” means the credit cannot exceed a person’s federal income tax for the year. 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 person’s federal taxes,“ she said. “Unfortunately, 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.”

The credit is available to individuals ages 18 years or older who have contributed to a 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 requirements:

• Single tax filers: maximum AGI of $33,000 in 2021 and $34,000 in 2022;
• Heads of households: maximum AGI of $49,500 in 2021 and $51,000 in 2022; and
• Married filing jointly: a maximum AGI of $66,000 in 2021 and $68,000 in 2022.

The tax filer cannot be a full-time student and cannot be claimed as a dependent on another person’s tax return.

“Please help spread the word about the Saver’s Credit by telling family, friends and colleagues,” Collinson said. “It may meaningfully impact an individual’s long-term savings and even inspire non-savers to start saving for retirement.”

This year, more people may fall under the AGI limits to be eligible for the Saver’s Credit because of employment disruptions during the pandemic.

“And it is not too late,” she said. “Eligible individuals who did not save for retirement last year can contribute to an IRA until April 18, 2022, for tax year 2021 and may be able to claim the Saver’s Credit.”