How the Saver’s Credit Can Help You Save for Retirement
Reading Time: 2 MinutesLast Updated: April 23, 2021
Saving for retirement can be difficult in the best of times, but even harder during a pandemic and challenging economy. An underutilized tax credit, known as the Saver’s Credit, may be able to make it easier.
In a nutshell, the Saver’s Credit is a tax credit that is intended to promote retirement savings among people who may find it hard to save. It is an additional benefit that goes beyond tax-deferred savings, and reduces your tax bill dollar-for-dollar by the amount of the credit.
The Saver’s Credit can reduce an eligible taxpayer’s federal income taxes when they save in a qualified retirement plan, such as a 401(k), or in an individual retirement account (IRA). Unfortunately, at Transamerica Center for Retirement Studies® we consistently find that awareness of this credit is low. In fact, our 2019 retirement survey of workers found that only 43 percent of U.S. workers were aware of this credit.
Saver’s Credit eligibility is based on your contributions to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account for which you are the designated beneficiary. Depending on your adjusted gross income (AGI) reported on your IRS Form 1040 series return, the amount of the credit is 50 percent, 20 percent, or 10 percent of your contribution. For tax year 2020, the following maximum AGIs apply:
- Single tax filers: $32,500.
- Heads of households: $48,750.
- Married and filing jointly: $65,000.
Additionally, the taxpayer must be 18 or older, cannot be a full-time student, and cannot be claimed as a dependent on another person’s tax return.
Important things you need to know:
- The IRS offers a quiz on its website to easily determine if you qualify for the credit.
- You need to complete IRS Form 8880 if you are preparing your tax return manually. Note that on this form the Saver’s Credit is called the “Credit for Qualified Retirement Savings Contributions.”
- The IRS has several Free File partners that offer online, free tax preparation tools for taxpayers with a max AGI of $72,000.
- You can make IRA contributions for tax year 2020 up until May 17. As of tax year 2020, there is no longer a maximum age for making IRA contributions.
You can find more details in English and Spanish at transamericacenter.org/saverscredit and irs.gov.
SSA’s posting of this blog does not constitute an endorsement or recommendation of any non-SSA organization or author.
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Felicia M.
Thanks for the explanation about the Saver’s Credit. I will obtain a Roth IRA.
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Saroj P.
How can I save money on Medicare? I received social security around 380$ and my husband get around 180$ and if Medicare take $148 wt will be left ? I don’t take this much medicine also , Medicare is expensive for me can I cancel it?
Marc G.
Yes you can cancel it but it will be even more costly if you need it in the future. If you qualify for part B and opt not to take it, if and when you need it, you can only sign up between January 01 and March 31 of each year and then your coverage won’t begin until July of that year. Additionally, they will charge you an extra 10% surcharge on your monthly premium. I would suggest you look into a program called QMB. If you don’t already qualify for Medicaid, contact your local Social SERVICES (not Social SECURITY) and ask if you qualify to receive MEDICAID and/or if they can assist/pay your Part B for you!!
Good Luck
A.C.
Hi, Saroj. We are sorry to hear about your situation. You may be eligible to receive assistance from the state where you live. Medicare enrollees who have limited income and resources may get help paying for their premiums and out-of-pocket medical expenses through the Medicare Savings Programs (MSP). Please call the Centers for Medicare & Medicaid Services at 1-800-633-4227 for more information. We hope this information is helpful.
neelam
I have take multiple plan for my old age, i think everyone should think about saving for for old age also
neelam
Linda
Now saving for old age is very difficult for middle class family, because income of middle class family is not increasing as compare to expenses
Thanks
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Mr T.
mr Takaphan jaruhungsin agency.gov overseas in Thailand llc and wealth public affairs federal contract id R_1517 my family had 1my wife ,no children!please issued pay my benefits of retirement plan.gov on start 04/30/2021 ,my age 67+ birth year 1954, after receive my benefit will comeback usa soon! My address 201/9village,banphan,phonnaie district,sakonnakon,Thailand 47230 send by direct express card mailed!
A.C.
Hi, Takaphan. For your security, we do not have access to private information in this venue. Since you are living outside of the U.S. you can contact your local Federal Benefits Unit for any assistance related to Social Security benefits. Also, our Office of International Operations home page provides more information to assist our customers living abroad. Just a reminder – please be cautious about posting personal information on social media. We hope this helps.
Alice M.
I was a Tax preparer for several years, now retired–I did not know that only if you had a low income that you were allowed the Saver’s credit! Does not sound reasonable for instance I had 5 children and my income was at that time $35000, which would have exempted me from getting the /saver’s credit..?
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