Some retirement savers may claim an extra write-off at tax time


Many Americans know the benefit of retirement savings, yet few realize there’s a special incentive to set aside money for their golden years: the saver’s credit.

The saver’s credit, formerly known as the retirement savings contributions credit, offers low- and moderate-income filers a write-off at tax time.   

Currently, savers may claim up to 50% of retirement contributions for a maximum credit of $1,000 for single filers or $2,000 for married couples filing together. 

Savers may qualify for 50% with an adjusted gross income of $19,750 or less ($39,500 for married filing jointly). The percentages drop to 20% and 10% as income rises and phases out entirely over $33,000 ($66,000 for couples).

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Someone may be eligible with workplace retirement plan contributions through Dec. 31, 2021, or individual retirement account deposits before the tax filing deadline.

However, the saver’s credit is non-refundable, meaning it may only reduce or eliminate levies owed, making it difficult to claim for those with little to no tax liability, which is common among low-income filers.

“Right now, the system does not give everybody equal incentives to save,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

In 2020, 33% of private industry employees didn’t have access to workplace retirement plans, according to the Bureau of Labor Statistics, and those working part-time were less likely to have employer-provided accounts. 

This proposal would give [lower earners] an incentive to save and it does it in a very effective way.

Shai Akabas

Director of economic policy at the Bipartisan Policy Center

While many workers qualify for an IRA, low-income Americans are less likely to have an account, a Tax Policy Center analysis shows.

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However, new proposals from House Democrats may expand retirement plan access while also boosting the saver’s credit through the $3.5 trillion budget.

The House Ways and Means Committee on Thursday approved a provision to require companies without employer-provided retirement plans to enroll employees in an IRA automatically.

The measure may also expand the saver’s credit by making it refundable up to $500, meaning someone may benefit even if they have no tax liability. Savers would receive this matching payment as a deposit in their retirement account, which is different from the current law.  

“This proposal would give [lower earners] an incentive to save,” said Akabas. “And it does it in a very effective way.”

The matching funds may be readily available after the deposit, according to the proposal, with the goal of long-term retirement savings. However, someone with a Roth IRA may still access contributions tax- and penalty-free, Akabas said. 

“That flexibility is very important, particularly for low and moderate-income households that go through a lot of urgent needs,” he said.

The cost of the saver’s credit expansion is estimated at $23 billion from 2022 to 2031, the Joint Committee on Taxation projects, with matching payments beginning in 2026.



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