Advisors who are working with younger clients or those with lower income levels should talk with them to make sure the Retirement Savings Contributions Credit, or Saver’s Credit, is on their radar, according to Catherine Collinson, president of the Transamerica Center for Retirement Studies.
The IRS allows retirement savers to claim a percentage of their contributions to qualified retirement plans, including myRA plans, up to $2,000 (or $4,000 if they’re married and filing jointly). Rollover contributions aren’t included in calculating the amount of the credit.
The IRS has characterized the credit as for “low and moderate income savers,” which many have translated to mean “poor,” but Collinson called that a “misconception.”
“Income eligibility requirements for the Saver’s Credit are much broader than people may think,” she told ThinkAdvisor on Monday. “Just in terms of the income eligibility requirements alone, around half of all tax filers may be eligible.”
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There are other limitations that bring the number of eligible filers down – they have to have some tax liability and they can take the credit only up to the amount of their tax bill, she said. Students and dependents are ineligible, as are minors.
Eligibility is based on tax filers’ adjusted gross income. Single filers who have an AGI of up to $30,750 in 2016 and $31,000 in 2017 are eligible for the credit. Limits for head of household filers are $46,125 in 2016 and $46,500 in 2017. Married joint filers have an income limit of $61,500 in 2016 or $62,000 in 2017.
The credit isn’t available to filers who use the 1040EZ form, Collinson said. She recommended tadpayers interested in the credit use Form 1040, 1040A or 1040NR.
Using IRS data from 2014, Collinson estimates about 30 million Americans may be eligible for the credit. However, only about 7.9 million actually claimed it.
“Our research has found that about one in three workers say they’re aware of” the credit, Collinson said. Furthermore, among the people most likely to be eligible for the credit – women or part-time and low-income workers – just one in four are aware of it.