As Americans file their income taxes, many are probably failing to take a tax credit they are entitled to for saving for their own retirement. But the good news is that those filers have until April 15 to take advantage of the program.
The Saver’s Credit is available to individuals or couples who contributed to a company-sponsored retirement plan or IRA in the past year and who meet adjusted gross income (AGI) requirements.
The Saver’s Credit can be applied to the first $2,000 of voluntary contributions to a 401(k) plan, 403(b) plan, IRA, or similar employer-sponsored retirement plan. For those who qualify, the credit can be as high as $1,000 for an individual and $2,000 for a married couple.
Those who qualify include the following:
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• Single filers with an adjusted income of up to $30,000 in 2014 or $30,500 in 2015.
• For the head of household, the adjusted income limit is $45,000 in 2014 or $45,750 in 2015.
• Those taking the credit must be at least 18 years of age.
• The filer cannot be a full-time student of be claimed as a dependent on someone else’s return.
Only 1 in 4 Eligible Take the Saver’s Credit
But, alas, only one in four of those who are estimated to qualify for the Saver’s Credit in fact take it, according to a recent study by the Transamerica Center for Retirement Studies.
“The Saver’s Credit is a tax credit that reduces an eligible taxpayer’s federal income tax, making it a meaningful incentive for low to moderate-income individuals and households to save for retirement,” according to Catherine Collinson, president of the nonprofit Transamerica Center. “Unfortunately, many eligible workers may be missing out on the Saver’s Credit because they are unaware of it.”
Collinson said that many workers may have missed the Saver’s Credit when they filed returns in the past, or they filed the wrong return for – preventing them from being able to take advantage. Still others might have saved had they known about the credit. But she stressed that it not too late to rectify the situation.
“For them, the good news is that it’s not too late to contribute to an IRA and claim the Saver’s Credit. You still have until April 15, 2015 to do so,” Collinson said.
Lack of Promotion Behind the Low Participation
That’s the good news. The bad news is that despite the Saver’s Credit being around since 2001, just 24 percent of American workers that are potentially eligible to take it do so, according to the 15th Annual Transamerica Retirement Survey.
The survey looks at a variety of retirement preparedness issues, but it has asked about the Saver’s Credit for several years now. In past years the participation rate of those estimated to be eligible has been as low as 15 percent.