Here’s how to qualify for the retirement savings contributions credit

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Here’s how to qualify for the retirement savings contributions credit

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There’s a lesser-known tax break for low- to moderate-income Americans who save for retirement. However, most eligible taxpayers don’t claim it, experts say.

The

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, or saver’s credit, helps offset funds added to an individual retirement account, 401(k) plan or another workplace plan. The tax break is worth up to $1,000 per filer.

It’s not too late if you didn’t make a qualifying contribution last year. There’s still time to make IRA deposits before April 15 to claim the credit on 2024 returns.

However, “the

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is a well-kept secret,” Catherine Collinson, CEO and president of Transamerica Center for Retirement Studies said in a February report. 

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Only about half of U.S. workers know about the saver’s credit, according to a survey from Transamerica Center for Retirement Studies, which polled more than 10,000 U.S. adults in September and October. 

That percentage

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among taxpayers with a household income of less than $50,000. 

Awareness of the credit is very low across the board.

Emerson Sprick

Associate director for the Bipartisan Policy Center’s Economic Policy Program

“Awareness of the credit is very low across the board,” but it’s even lower among taxpayers who could qualify to use it, said Emerson Sprick, associate director for the Bipartisan Policy Center’s Economic Policy Program.

To that point, roughly

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claimed the saver’s credit in 2022, according to a the most recent IRS data. The average credit value that year was $194, according to a Transamerica Center for Retirement Studies analysis.

How the saver’s credit works

The saver’s credit can offset as much as 50% of retirement contributions up to $2,000 for single filers or $4,000 for married couples filing jointly, for maximum credits of $1,000 or $2,000, respectively.

The credit provides a dollar-for-dollar reduction of levies owed, which could reduce your tax bill or boost your refund. But the tax break is not “refundable,” which means there’s no benefit with $0 tax liability, Sprick explained.

“The way it’s calculated is fairly complex,” he said. 

There are

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to claim 50%, 20% or 10% of your contribution, depending on your filing status and adjusted gross income. You can

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to see if you’re eligible. 

For 2024, your adjusted gross income can’t exceed $23,000 for single filers or $46,000 for married couples for the 50% credit. The percentages drop to 20% and 10%, respectively, as earnings increase, with a complete phase-out above $38,250 for individuals or $76,500 for joint filers.

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Credit will soon be replaced

Because of the credit’s design and workers’ lack of awareness, “the uptake of this is really low,” Sprick said.

That’s part of the motivation for the “

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“Everyone hopes that it’s going to be easier,” Sprick said. But “there are a lot of logistics that remain to be worked out.”

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