Millions of taxpayers — and particularly those who are baby boomers — may be missing out on the chance to slash their tax bill by as much as $2,000 each year.
Less than half (49%) of U.S. workers are aware of a federal tax credit that can do just that, according to a recent survey of more than 5,700 workers by the Transamerica Center for Retirement Studies.
It’s called the retirement savings contributions credit, also known as the Saver’s Credit.
If you’re eligible for it, this nonrefundable tax credit is worth 10% to 50% of your annual retirement account contributions. The maximum dollar amount of the credit is $1,000 per year — or $2,000 for married people filing joint tax returns.
And yet, members of the generation closest to retirement are least likely to be aware of the Saver’s Credit, with only 32% of baby boomers participating in the Transamerica survey reporting that they’re aware of the credit.
Even among members of the generation second-closest to retirement, Gen X, only 43% were aware of it.
The youngest generations included in the survey — millennials and Gen Z (57% of each) — were easily the most likely to be aware of the Saver’s Credit.
Your eligibility for the Saver’s Credit depends largely on your income.
To be eligible for the credit for the 2023 tax year — the one for which your return is due by April 2024 — you must:
- Have an adjusted gross income (AGI) of no more than $73,000 if your tax-filing status is married filing jointly, $54,750 if your status is head of household or $36,500 for all other taxpayers.
- Be an adult who is not a full-time student and not claimed as a dependent on someone else’s tax return.
- Contribute to an eligible retirement plan (listed below).
The exact percentage of your retirement contributions that is eligible for the Saver’s Credit also depends on your income and tax-filing status. Visit the IRS’ Saver’s Credit webpage for a breakdown.
Contributions to the following types of retirement plans may qualify for the Saver’s Credit:
- Traditional individual retirement account (IRA)
- Roth individual retirement account
- Governmental 457(b)
- Salary Reduction Simplified Employee Pension (SARSEP)
- Savings Incentive Match Plan for Employees (SIMPLE)
Additionally, as of 2018, contributions to an Achieving a Better Life (ABLE) account make the account’s designated beneficiary eligible for the Saver’s Credit. ABLE accounts are a type of tax-advantaged savings account for people with disabilities (the designated beneficiaries).
It’s worth noting that while the deadline to contribute to most of these types of accounts is Dec. 31, Uncle Sam gives you up until Tax Day to add money to an IRA and thus qualify for contribution-related tax breaks such as the Saver’s Credit.
This means, for example, that you could make an IRA contribution for the 2023 tax year as late as Tax Day in April 2024.