The Saver's Credit: Don't Leave This Tax Break on the Table

The saver's credit allows certain low- to middle-income individuals to claim a tax credit for making contributions to an IRA or a workplace retirement account

You probably know about the benefits of tax-deferred investment accounts. But did you know that there is a special IRS provision that potentially allows you to save money just for being a retirement saver? The so-called "saver's credit," formally known as the Retirement Savings Contributions Credit, permits certain low- to middle-income workers to claim a tax credit for making eligible contributions to an IRA or most qualified workplace retirement plans.

But this tax break is currently going largely untapped. According to a study by the nonprofit Transamerica Center for Retirement Studies, only about a third of U.S. workers are aware of the saver's credit.¹

The IRS Says …²

Here is a rundown on the basic rules governing the credit. In order to claim the credit, the IRS requires that you:

Are at least 18 years old;
Are not a full-time student; AND
Cannot be claimed as a dependent on another person's tax return.

Retirement plans eligible for the credit include:

Traditional or Roth IRAs
401(k)s and 403(b)s
SIMPLE IRAs
SARSEPs
501(c)(18) or governmental 457(b) plans
Voluntary after-tax employee contributions to qualified retirement and 403(b) plans.

The Amount You Can Claim - According to the IRS, "The amount of the credit is 50 percent, 20 percent or 10 percent of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A)."

Here's a breakdown for tax year 2016:

Credit rate	Married filing jointly	Head of household	All other filers*
50% of contribution	AGI not more than $37,000	AGI not more than $27,750	AGI not more than $18,500
20% of contribution	$37,001-$40,000	$27,751-$30,000	$18,501-$20,000
10% of contribution	$40,001-$61,500	$30,001-$46,125	$20,001-$30,750
0% of contribution	more than $61,500	more than $46,125	more than $30,750

*Single, married filing separately, or qualifying widow(er).

To learn more about the saver's credit visit the IRS website. For help shaping up your retirement planning and/or tax planning strategy contact your financial advisor.

Source/Disclaimer:

¹Source: Transamerica Center for Retirement Studies, "Retirement Throughout the Ages: Expectations and Preparations of American Workers," May 2015.

²Source: IRS, "Retirement Savings Contributions Credit," updated February 22, 2016.

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