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Your Financial Life
By Catherine Collinson / Mar 18, 2016

The Saver’s Credit: Uncle Sam Wants You to Save for Retirement

Coin jar

It’s hard to believe that tax time is here. Did you know there’s an important tax credit that many Americans may be missing out on simply because they’re unaware of it?

The Saver’s Credit, also referred to by the IRS as the Retirement Savings Contributions Credit, is available to low- to moderate-income workers who are saving for retirement. Yet only 25 percent of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 16th Annual Transamerica Retirement Survey.

The Saver’s Credit is a tax credit that may be applied to help offset the first $2,000 of voluntary contributions an eligible worker makes to a 401(k), 403(b) or similar employer-sponsored retirement plan, or an IRA (including myRA). Credits of up to $1,000 for single filers, and $2,000 for married couples, are available.

How is the Saver’s Credit different from tax-deferred savings?

For eligible individuals, the Saver’s Credit is a tax credit in addition to enjoying the benefits tax-deferred savings. It actually pays to save for retirement.

The Saver’s Credit may reduce an eligible taxpayer’s federal income taxes dollar for dollar, making it an incentive for eligible individuals and households to save for retirement.

Who is eligible to claim the Saver’s Credit?

Generally, the credit is available to workers aged 18 years or older who have contributed to a company-sponsored retirement plan such as a 401(k) or 403(b) — or IRA — in the past year and meet the Adjusted Gross Income (AGI) requirements:

  • Single filers with an adjusted income of up to $30,500 in 2015 or $30,750 in 2016 are eligible.
  • For the head of a household, the adjusted income limit is $45,750 in 2015 or $46,125 in 2016.
  • For those who are married and file a joint return, the adjusted income limit is $61,000 in 2015 or $61,500 in 2016.

Additionally, the filer cannot be a full-time student or be claimed as a dependent on another person’s tax return.

How Can People Claim the Saver’s Credit?

One of the best ways to claim the credit is to take advantage of the IRS Free File program. Many people who are eligible to claim the Saver’s Credit are also eligible take advantage of the Free File program.

Only at www.irs.gov, the IRS makes available tax preparation software from well-known commercial software companies for most tax payers who fall within the Saver’s Credit income eligibility requirements  – at no cost, hence the name Free File program.

If you are using tax preparation software to prepare your tax return, including those offered through the IRS Free File program, be sure to use Form 1040, Form 1040A or Form 1040NR.

If your software has an interview process, be sure to answer questions about the Saver’s Credit, Retirement Savings Contributions Credit and/or Credit for Qualified Retirement Savings Contributions.

Very important – the Saver’s Credit is not available with Form 1040EZ.

More information about the Saver’s Credit can be found at www.transamericacenter.org and www.irs.gov.

 

Transamerica and its agents and representatives do not provide tax or legal advice. This material is for informational purposes and should not be construed as legal or tax advice. For legal or tax advice concerning your situation, please consult your attorney or professional tax advisor.

Catherine Collinson serves as president of Transamerica Institute® and Transamerica Center for Retirement Studies®, and is a retirement and market trends expert and champion for Americans who are at risk of not achieving a financially secure retirement. Catherine oversees all research, publications and outreach initiatives, including the Annual Transamerica Retirement Survey. She also serves as the executive director of Aegon Center for Longevity and Retirement.

Transamerica Institute® is a nonprofit, private foundation dedicated to identifying, researching and educating the public about retirement, health coverage, and other relevant financial issues facing Americans today. Transamerica Institute comprises two divisions: Transamerica Center for Retirement Studies® and Transamerica Center for Health Studies®. Transamerica Institute is funded by contributions from Transamerica Life Insurance Company and its affiliates and may receive funds from unaffiliated third parties. For more information about the Institute, please refer to www.transamericainstitute.org

 

 

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