Tips for Claiming the IRS Saver’s Credit 2021
We’re back with another edition of ClearPath – Your Roadmap to Health & Wealth. I’m your host, Al Waller. Saving for retirement can be difficult in the best of times, but even harder during a pandemic. We are here today to discuss an important, but underutilized, tax credit known as the Saver’s Credit, which makes saving for retirement more affordable. Catherine Collinson, president of nonprofit Transamerica Center for Retirement Studies, is here to help us understand it.
Catherine, what is the Saver’s Credit, and what do we need to know?
Catherine Collinson: In a nutshell, the Saver’s Credit is a tax credit which is intended to promote retirement savings among people who may find it hard to save. It can reduce an eligible taxpayer’s federal income taxes when they save in a qualified retirement plan, such as a 401(k) or IRA. However, our ate 2019 retirement survey of workers found that only 43 percent of workers are aware of it.
Al Waller: This seems too good to be true. How is the Saver’s Credit different from the tax-deferral of saving for retirement?
Catherine Collinson: The Saver’s Credit goes above and beyond tax-deferred savings. With tax-deferred savings, you reduce your taxable base of income and are taxed on that lower amount. The Saver’s Credit is an additional benefit. It’s a tax credit, so your tax bill is actually reduced dollar-for-dollar by the amount of the credit.
Al Waller: Wow. I know it’s always nice to owe less money in taxes, and consistently saving for retirement is fundamental to achieving a financially secure retirement. Let’s be clear, who is eligible to take advantage of the credit?
Catherine Collinson: Income eligibility requirements do apply, and I’ll quickly breeze through them. For tax year 2020: • For single filers the maximum adjusted gross income is $32,500. • For heads of households, it’s $48,750 and • For those who are married and filing jointly, the max AGI is $65,000. Additionally, taxpayers must be: • Age 18 or older • Not be a full-time student, and • Not be claimed as a dependent on another person’s tax returns
Al Waller: Okay, Catherine, how do people claim the Saver’s Credit?
Catherine Collinson: There are four important things people need to know: 1. The IRS offers a quiz on its website to easily determine if you qualify for the credit. 2. You need to complete Form 8880. Note that on this form it’s called the Credit for Qualified Retirement Savings Contributions. 3. The IRS has several Free File partners that offer online tax preparation tools for free to taxpayers with a max AGI of $72,000. 4. Lastly, you can make IRA contributions for tax year 2020 up until April 15.
Al Waller: Thanks for this great information. Our listeners can find more details in English and Spanish, at transamericacenter.org/saverscredit and irs.gov. That’s all we have time for here on ClearPath – Your Roadmap to Health and Wealth on WYPR, your NPR news station.