At an age when more than fifty percent of all American families aged 55 and older were saving nothing for retirement, the government created the saver’s credit as a tool to encourage people to save money for their future. The tax benefit is intended for people with low to moderate incomes; the IRS describes it as the retirement savings deposit credit.
The words retirement savings contribution credit and saver’s tax credit are interchangeable and can be used alternately.
Many taxpayers are unaware of this benefit, despite the fact that it offers a tax credit to individuals who make contributions to their eligible retirement accounts and make less than a specific amount of money. In fact, based on a 2023 survey, almost half of American workers are unaware that the benefit exists.
What is the tax credit for savers?
If you qualify, you may use the saver’s credit as a tax credit on your tax return. You might be qualified to get the credit for up to 50% of your qualified retirement contributions made to the employer-sponsored retirement schemes or IRAs, up to $2,000 annually for one individual, based on your revenue level.
Despite being a benefit for more than 20 years, the income tax credit is still not widely recognized.
Debbie Todd, CPA, CEO of iCompass Compliance Solutions, states, “The saver’s credit is an often-overlooked tax credit which may substantially decrease your tax bill as you plan for retirement.”
The credit is available to qualified taxpayers in spite of the tax deduction.
The IRS states that while the credit might lower tax due or raise a taxpayer’s refund, it is impacted by additional credits and reductions.
For whom is the retirement savings contribution credit applicable?
In order to apply for the saver’s credit, you must meet the 3 conditions outlined by the IRS:
- You must be eighteen years of age or older.
- It is not possible for you to be enrolled full-time; and
- On anyone else’s tax return, you can’t be listed as a dependent.
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