Most people know they should save more for retirement, but many can’t — or won’t — because they say it’s hard, confusing, or it is simply not their only priority. A recent survey by Charles Schwab found 35 percent of 401(k) participants say they aren’t willing to sacrifice dinner out, vacations and other “quality of life” expenditures to save more.
But would you forgo a night out at Olive Garden or a trip to Disney if you knew that that Uncle Sam would help you cut your tax bill dollar-for-dollar depending on how much you save?
Many low- and moderate-income workers may think they don’t have enough money to save for retirement, but they may be unaware of the Saver’s Tax Credit.
Fewer than one in four American workers who are eligible are aware of this tax break that can reduce or even eliminate your tax bill entirely. Even fewer Americans actually claim it. Some experts say that may be due in part to the fact that less than half of all workers have a retirement plan at work through which they can save and claim the credit.
The saver’s credit is a nonrefundable federal income tax credit available to single tax filers with a adjusted gross income of $30,500 or less or married taxpayers with an adjusted gross income of less than $61,000. You can claim the credits based on your contributions to a 401(k), 403(b), 457 plan, SIMPLE and SEP IRAs, as well as traditional and Roth IRAs.
Ways to save beyond your 401(k) plan:
Recent grads who have just landed their first jobs as well as seasoned workers who have been laid off are among those who often overlook this valuable tax credit, experts say. It is a terrific opportunity to reduce your federal income taxes.
Depending on your adjusted gross income and tax filing status, you can claim up to 10 to 50 percent of the first $2,000 of your retirement contributions for the year — that can add up to $200, $400 or a maximum saver’s credit of $1,000 that will lower your tax bill dollar-for-dollar.
Plan now to make sure you get the full benefit of this saver’s credit. And if you get a refund in April, have it directly deposited into an IRA to boost your retirement savings even further.