If you think you have to earn a lot of money to be able to save for the future, you’re in for a neat surprise. There’s a little-known federal tax credit that gives low-to-moderate income earners up to $2,000 as a reward for saving money.
How the Saver’s Credit Can Help You Save for the Future
In 2001, Congress passed the Retirement Savings Contributions Credit (Saver’s Credit). The measure is designed to help savers who make a decent living but not a huge income.
If you stash cash in your workplace retirement account, IRA or Achieving a Better Life Experience (ABLE) plan, the government will match your money with a 10%, 20% or 50% tax credit, depending on your adjusted gross income (AGI). The maximum credit is $1,000 ($2,000 if married and filing jointly).
You may be eligible for the credit if you fit all of these criteria:
- Age 18 or older
- Not claimed as a dependent on another person’s return
- Not a student
See more details about eligibility here.
Saver’s Credit Example
The Internal Revenue Service (IRS) website provides a real-world example of how this credit works:
“Jill, who works at a retail store, is married and earned $41,000 in 2020. Jill’s spouse was unemployed in 2020 and didn’t have any earnings. Jill contributed $2,000 to her IRA for 2020. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $39,000. Jill may claim a 50% credit of $1,000 for her $2,000 IRA contribution on her 2020 tax return.”
Saver’s Credit Income Limits for 2021
Use this chart from the IRS to calculate your credit:
|Credit Rate||Married Filing Jointly||Head of Household||All Other Filers|
|50% of your contribution||AGI not more than $39,500||AGI not more than $29,625||AGI not more than $19,750|
|20% of your contribution||$39,501 - $43,000||$29,626 - $32,250||$19,751 - $21,500|
|10% of your contribution||$43,001 - $66,000||$32,251 - $49,500||$21,501 - $33,000|
|0% of your contribution||more than $66,000||more than $49,500||more than $33,000|
This is important: The Saver’s Credit is the kind of tax credit that you have to ask for when you’re doing your taxes; you won’t automatically get this benefit.
It appears that few people are aware of this Saver’s Credit. The Transamerica Center for Retirement Studies has research suggesting that only 12% of U.S. workers with annual household incomes of less than $50,000 even know about this credit.
That’s got to change.
Our goal here at Clark.com is for you to save money. If there’s an opportunity, we want you to take the dough!