Saver's Credit

Limits

The Saver’s Credit can be claimed by:

Benefits

This credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, or $2,000 for married couples, the IRS cautions that it is often much less which is due in part to the impact of other deductions and credits that may apply. However, the credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers having the least income.

Other restrictions

In addition to the income limits noted previously, there are other restrictions which apply.

• Employee must be 18 years or older;
• Taxpayer is ineligible if claimed as a dependent on someone else’s return;
• Students are not eligible; and
• Certain retirement plan distributions reduce the contribution amount used to figure the credit.

How to apply

Many companies have implemented automatic enrollment in their 401(k) plans recently. They may have a number of lower-income employees who would benefit from the Saver’s Credit. It may not be a large amount of money for some people, but it could be an added bonus for others.

The Saver’s Credit began as a temporary provision in 2002, but the IRS made it a permanent part of the tax code in 2006. To help preserve the value of the credit, the income limits are adjusted annually to keep pace with inflation. Employees interested in taking advantage of this credit should complete Form 8880, Credit for Qualified Retirement Savings Contributions (available at www.irs.gov/pub/irs-pdf/f8880.pdf)