The Saver's Credit: A Best-Kept Retirement Savings Secret

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By Christopher Magno, SVP/General Manager, Retirement Services

Half of U.S. employees are unaware of a federal tax credit — the Saver's Credit — available to eligible taxpayers who are saving for retirement via a qualified retirement plan. It's time to fix that.

These days, saving for retirement isn't exactly easy. Some employees aren't choosing to contribute to a retirement plan for whatever reason. And thanks to the stock market's wild swings, those who are saving are less than thrilled looking at their monthly account statements.

But there is one piece of good news. It's the Retirement Savings Contributions Credit — also called the Saver's Credit — and it's time to spread the word on this little-known benefit and encourage your employees to participate in your retirement plan.

A bit of background on the Saver's Credit

The Retirement Savings Contributions Credit isn't exactly new. In fact, it's been around since 2002, and was made permanent as part of the U.S. Pension Protection Act of 2006 to help lower-income households save for retirement.

Yet just 6.1% of taxpayers claimed the savers credit in 2019 (the latest data available).

Eligibility requirements are fairly straightforward: You must be 18 or older, and not a full-time student or claimed as a dependent on another taxpayer's return. You must also be contributing to an eligible retirement savings plan, and meet certain income thresholds:

  • $68,000 — Married filing jointly
  • $51,000 — Head of household
  • $34,000 — Single

If an employee meets the eligibility requirements, the current savers credit amount is either 10%, 20% or 50% of the first $2,000 they contribute to their retirement accounts ($4,000 for joint filers). The exact percentage is based on income and filing status.

As this is a tax credit, employees need to owe taxes in order to benefit from the full amount, or even partial amount of the credit.

Expanding the pool of retirement savers

The proposed EARN Act includes a number of useful revisions to the Saver's Credit to help even more people save for retirement. The updates currently under review include the following:

  • Set all credits at 50% with a phase out based on income
  • The credit would be deposited into the taxpayer's retirement account rather than applied to their tax bill, so they get the full benefit regardless of how much tax is owed
  • The credit amount would not count against annual contribution limits

These proposed changes aren't scheduled to take effect until 2027, so we'll keep you posted as new legislation is finalized and implemented.

[Related: SECURE 2.0 Act of 2022.]

Right now, it's worth making sure your employees are aware of the current tax benefits they may be missing under the existing Saver's Credit. Here's a one-page summary in English or Spanish that you're welcome to share with your employees.

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ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor. ADPRS-20221026-3762