Too Many Workers Unaware of Retirement Saving Tax Credit

401k, retirement, retirement plans, taxes

It's an issue.

Are participants leaving (tax) money on the table?

So it would appear, according to Transamerica Center for Retirement Studies (TCRS), and in an era of the defined benefit’s demise where workers need all the savings help they can get, it’s a problem.

“Most American workers are unaware of an important tax credit that may help them save for retirement,” the center notes. “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.”

Unfortunately, 62 percent of workers are unaware of the credit, it adds.

“The Saver’s Credit is available to American workers who contribute to a 401k, 403b or IRA,” Catherine Collinson, president of TCRS, said in a statement. “By saving for retirement and claiming the credit, eligible taxpayers may be able to lower their federal income taxes. Saving for retirement can be difficult when juggling financial priorities. The Saver’s Credit might just be the motivator for those not yet saving for retirement to get started.”

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 401k, 403b 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.

“The Saver’s Credit is a tax credit in addition to the benefit of tax-advantaged savings when contributing to a 401k, 403b or IRA,” Collinson explained. “Many eligible retirement savers may be confusing these two incentives because the notion of a double tax benefit seems too good to be true.”

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:

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:

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.

“We encourage people to help spread awareness of the Saver’s Credit by telling family, friends and colleagues,” Collinson concluded. “The benefit could make a meaningful impact on an individual’s or family’s annual budget, and may be the needed push for non-savers to get on track for retirement. Those who are eligible but did not save last year can still contribute to an IRA until April 15, 2019, and may be able to claim the Saver’s Credit for 2018.”

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