The saver's credit is a fairly unknown incentive for low-to middle-income workers to save for retirement. By helping to spread the word to employees, employers can increase the value of their retirement plan benefits for those employees.The credit, called the Retirement Savings Contributions Credit, may be applied to voluntary contributions that an eligible workers makes to a 401(k) or similar employer-sponsored defined contribution retirement plan or to an individual retirement account (IRA). Credits range up to $1,000 for single filers and $2,000 for married couples.
The credit is available to workers aged 18 years and older who have contributed to a company-sponsored retirement plan or IRA in the past year and are:
- Filers who are single or married, filing separately, with adjusted gross income of up to $27,750 in tax year 2010 or $28,250 in 2011.
- Filers who are head of household and have adjusted gross income of up to $41,625 in 2010 and $42,375 in 2011.
- Filers who are married and filing a joint return and have adjusted gross income o up to $55,000 in 2010 or $56,500 in 2011.
- The filer cannot be a full-time student or be claimed as a dependent on another person's tax return.
According to Transamerica Life Insurance Company, "only 12 percent of full-time American workers with annual household incomes of less than $50,000 are aware of the credit". Employers can educate low and moderate-income workers to learn how to apply for the saver's credit and also maximize the value of their retirement plan contributions. Transamerica recommends communicating the following advice:
- Filers using tax preparation software should use form 1040A, 1040 or 1040NR. The credit is not available with form 1040EZ (popular with low-income filers).
- Filers using tax preparation software should watch for and be sure to answer questions that refer to the saver's credit, retirement savings contributions credit and/or credit for qualified retirement savings contributions.
- Filers preparing their tax returns manually should complete form 8880, Credit for Qualified Retirement Savings Contributions, to determine the credit rate and amount.
- Filers using a professional tax preparer should ask about the saver's credit.
Additional online information can be found on the IRS Website.
