Lower income? Don’t pass up the saver’s credit

October 10, 2013

saverscredit-resize-380x300By Jason Alderman
Director of Visa’s financial
education programs


In 2002, Congress passed
legislation to create an income
tax credit designed to
encourage lower- and middle-
income people to save
money for retirement. The
saver’s credit, worth up to
$1,000 a year for individuals
($2,000 for couples filing
jointly), rewards people for
contributing to an IRA or
401(k) plan.
Regrettably, the people
most likely to benefit from
the saver’s credit are also
those who can usually least
afford to set aside money
for retirement. It doesn’t
help that only one-quarter
of people earning less than
$50,000 even know the credit
But if you can squeeze a
few dollars out of your budget,
the saver’s credit is worth
pursuing. Tax credits reduce
the amount of income tax
paid, dollar for dollar; so
many low-income people
can recoup the amount they
contribute to retirement
accounts by up to 50 percent
through reduced taxes.
And those whose employers
match a portion of their
401(k) contributions reap
even bigger rewards.
Another good selling
point: Parents or grandparents
who want to jumpstart
their low-income kids’ retirement
savings can fund their
IRA or 401(k) contribution,
thereby making them eligible
for the saver’s credit even if
they can’t afford to contribute
on their own.
Here’s the nitty-gritty on
the saver’s credit:
• The saver’s credit is a
“nonrefundable”tax credit,
which means it reduces income
taxes owed, dollar for
dollar – although it won’t
generate a tax refund if the
credit is more than the taxes
you owe.
• The saver’s credit helps
offset part of the amount
you voluntarily contribute
to an IRA or 401(k) plan.
Your credit amount is based
on your tax filing status, adjusted
gross income and the
amount you contribute to
qualifying retirement programs.
It can be claimed by:
• Married couples filing
jointly with adjusted gross
income (AGI) of no more
than $59,000.
• Heads of households
with AGI up to $44,250.
• Singles (or married filing
separately) with AGI up to
The credit rate is 10 percent,
20 percent or 50 percent
of the first $2,000 you
contribute ($4,000 for married
couples filing jointly),
depending on your AGI; the
lower your AGI the higher
the percentage. For example:
• Single filers with an AGI
up to $17,500 receive a 50
percent credit on the first
$2,000 they contribute (i.e.,
up to a $1,000 credit); 20 percent
on AGI up to $19,250
($200 credit); and 10 percent
on AGI up to $29,500
($100 credit). Anything over
$29,500, you don’t qualify.
• For joint filers the credit
amount limits are: 50 percent
on up to $35,500 AGI
(50% X $4,000 = $2,000);
20 percent on up to $38,500
($800); and 10 percent on up
to $59,000 ($400).
Other eligibility rules:
• You must be at least age
• You can’t be claimed as
a dependent on someone
else’s return.
• You can’t have been a
full-time student during any
part of five calendar months
in 2013.
• You must contribute to
a 401(k) by December 31,
2013, or to an IRA by April
15, 2014.
Important Note: You
cannot claim the credit using
IRS Form 1040 EZ, the
form many lower-income
people file. To claim it, you
must submit IRS Form 8880
with Form 1040, 1040A or
1040NR. It’s a little extra
bookkeeping, but could be
worth the effort.
Saving money for the future
is never easy, especially
when you’re struggling to
pay daily bills. But if you can
somehow manage to take advantage
of the saver’s credit
now, you’ll thank yourself at