Valuable Tax Credit Available to Retirement Savers

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Most American workers are unaware of an important tax credit that may help them save for retirement. The Saver’s Credit, also referred to as the Retirement Savings Contributions Credit by the Internal Revenue Service (IRS), is available to eligible taxpayers who are saving for retirement.

What Is the Saver’s Credit?
The Saver’s Credit 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, or a traditional or Roth IRA. The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.

Who Can Claim the Saver’s Credit?
The credit is available to workers ages 18 years or older who have contributed to a company-sponsored retirement plan or IRA in the past year and meet the Adjusted Gross Income (AGI) requirements:

  • Single tax filers with an AGI of up to $31,500 in 2018 or $32,000 in 2019 are eligible;
  • For the head of a household, the AGI limit is $47,250 in 2018 or $48,000 in 2019; and,
  • For those who are married and file a joint return, the AGI limit is $63,000 in 2018 or $64,000 in 2019.

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

 Tips for claiming the Saver’s Credit: 

  • If you are using tax preparation software to prepare your tax return, including those programs offered through the IRS Free File program, use Form 1040 or Form 1040NR. If your software has an interview process, be sure to answer questions about the Saver’s Credit, also referred to as the Retirement Savings Contributions Credit and/or Credit for Qualified Retirement Savings Contributions.
  • If you are preparing your tax return manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Schedule 3 (Form 1040), or Form 1040NR.
  • If you are using a professional tax preparer, be sure to ask about the Saver’s Credit.
  • If you receive a refund, consider directly depositing it into an IRA to further boost your retirement savings.

Another important and potentially overlooked opportunity is the IRS Free File program. Workers who are eligible to claim the Saver’s Credit are also eligible to take advantage of this program that offers federal income tax preparation software for free to tax filers with an AGI of $66,000 or less. Twelve companies make their tax preparation software available through this program at www.irs.gov/FreeFile. Certain restrictions may apply.

More information can also be found at www.irs.gov.

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