Saver’s Credit: How to get free money to save for retirement

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If you think you have to earn a lot of money to save for the future, you’re in for a sweet surprise!

There’s a little-known tax credit that gives low-to-moderate income earners up to $2,000 as a reward for saving money.

Now who says money doesn’t grow on trees?!?

RELATED: 14 things to know about Social Security in 2018

Get paid to save money for the future

In 2001, Congress passed what’s called the Saver’s Credit during the Bush administration with the goal of assisting savers who make a decent living but not a huge income.

Here’s the deal: If you stash cash in your workplace retirement account, IRA or ABLE plan, the government will match your money with a 10%, 20% or 50% tax credit — up to a maximum of $2,000 ($4,000 if filling jointly) — all dependent on your level of income.

The Internal Revenue Service provides a real-world example of how this credit works on its website:

“Jill, who works at a retail store, is married and earned $37,000 in 2017. Jill’s husband was unemployed in 2017 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2017. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.”

New increased income limits for 2019

Buried in an announcement about newly increased limits for 401(k) and IRA contributions in 2019, the IRS also reveal it’s bumping up the limits of how much you can earn next year and still pick up free cash through the Saver’s Credit.

This chart spells it all out with adjust gross incomes (AGI) limits:

2019 Saver’s Credit

Credit Rate Married Filing Jointly Head of Household All Other Filers
50% of your contribution AGI not more than $39,000 AGI not more than $29,250 AGI not more than $19,500
20% of your contribution $39,001 – $42,000 $29,251 – $31,500 $19,501 – $21,000
10% of your contribution $42,001 – $64,000 $31,501 – $48,000 $21,001 – $32,000
0% of your contribution more than $64,000 more than $48,000 more than $32,000

Note this well: The Saver’s Credit is the kind of tax credit that you have to ask for when you’re doing your taxes or having them done for you; you won’t automatically get this benefit.

The relevant form you’ll need to file is 8880 and it works in conjunction with your 1040A, 1040 or 1040NR — but not the 1040EZ.

Full-time students are not eligible for the credit, nor are people who are claimed as a dependent on another person’s return.

Also disqualified are any rollover contributions, such as money that you moved from another retirement plan or IRA during 2018. In addition, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.

The real shame is that nobody seems to be aware of this Saver’s Credit in the first place. The Transamerica Center for Retirement Studies has research suggesting that a scant 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!

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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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