The average retirement benefit from Social Security may not be enough to pay for your expenses during retirement. The federal government encourages low-income earners to save for retirement through a tax credit called the Saver’s Credit. It is a non-refundable tax credit for individuals who make under $31,000 or married couples who make under $62,000 a year. Only 25 percent of those eligible for the Saver’s Credit based on their income take advantage of the credit.
How Does the Saver’s Credit Work?
The Saver’s Credit can reduce the amount of taxes you owe the federal government when you save for retirement. Individuals who make less than $31,000 a year, and who save for retirement, can receive a credit of up to $1,000 on their federal income taxes. Married couples who file together and make less than $62,000 a year, can receive up to a $2,000 tax credit on their federal income taxes. The Saver’s Credit can be worth 10 to 50 percent of the amount that you saved for retirement during the year. See the chart below to find out how much your credit can be.
In order to be eligible for the Saver’s Credit, you or your spouse must contribute to a retirement plan and meet other requirements. See the checklist below of other requirements and which retirement plans are eligible.
The Credit is non-refundable, meaning that it can only decrease the amount of federal taxes that you owe and cannot provide a refund. However, the Saver’s Credit can be combined with other tax credits that can provide a refund, such as the Earned Income Tax Credit (EITC).
Requirements for the Saver’s Credit