Most American workers with access to an employer-sponsored retirement savings plan aren't putting aside enough to maintain their standard of living when they finally say goodbye to their colleagues for the last time. The lack of retirement savings is hardly surprising considering all the demands on our money during our careers. The strain of adequately funding retirement plans is especially acute among lower- and moderate-income employees.
Enter the Saver's Credit, also known as the Retirement Savings Contributions Credit. The Saver's Credit is designed to help lower-and moderate-income workers save more for their retirement while lowering their tax bill — a double gain! The Saver's Credit is a non-refundable tax credit that can be applied up to the first $2,000 of voluntary contributions an eligible taxpayer makes to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE (Achieving a Better Life Experience) account. "Non-refundable" means the credit cannot exceed your federal income tax for the year. The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.
Problem is, the Saver's Credit is an underappreciated retirement benefit, says Catherine Collinson, CEO and president of Transamerica Institute and the Transamerica Center for Retirement Studies. Collinson made a pitch for greater awareness of the under-the-radar Saver's Credit while on a panel at the recent 2023 Century Summit at Stanford University. Specifically, she noted that only 49% of workers are aware of the credit according to the 23rd Annual Transamerica Retirement Survey. Part-time workers were even less aware than full-time workers.
Here are some additional details of the Saver's Credit. Eligibility is based on income, and the credit is reduced depending on your adjusted gross income (AGI). You can receive a tax credit of 10%, 20%, or 50% of the first $2,000 ($4,000 for joint filers) of your retirement plan contributions, depending on your AGI. For example, in 2023 you can claim 50% of your contribution if your AGI in 2023 isn't more than $43,500 if married filing jointly; $32,625 for head of household; and $21,750 for all others.
For the coming tax season, let's at least make sure that everyone eligible for the Saver's Credit takes advantage of the benefit.
Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.