Half of the workers aren’t aware of the saver’s tax credit, also referred to as the retirement savings contributions credit, according to recently released survey findings from Transamerica Center for Retirement Studies.
Single filers can receive a $1,000 non-refundable credit and joint filers can get $2,000.
To qualify for the retirement saver's credit, single filers must have an adjusted gross income of $33,000 or less. That income limit is $49,500 for a head of household and $66,000 for married couples filing jointly.
Your credit amount may be reduced if you had any recent distributions from a retirement plan, IRA, or an Achieving a Better Life Experience account.
You will need to use IRS form 8880 to claim the credit on your tax return.
There are other restrictions. You have to be 18 years old or older, not a full-time student, and not claimed as a dependent on somebody else's returns.
What is defined as a qualified retirement account?
The saver’s credit applies to voluntary contributions to a qualified retirement account.
“[Your] 401(k), 403(b), 501(c)(18)(D) plan, a traditional or Roth IRA retirement account qualifies, [but] it doesn't apply to rollover IRAs,”.Catherine Collinson, CEO, and president at Transamerica Institute, recently told Yahoo Finance. “So for example, you have a balance in your 401(k), leave your employer [and] roll it over into an IRA. That type of IRA is not eligible.”
Contributions to government 457(b), SARSEP, or SIMPLE plans are also eligible for the credit.
In 2018, the IRS added a provision that allows designated beneficiaries of contributions to an Achieving a Better Life Experience account to be eligible for the saver’s credit.
These accounts are “tax-advantaged savings programs for eligible people with disabilities...[that] helps designated beneficiaries pay for qualified disability expenses [and] are tax-free if used for qualified disability expenses,” according to the IRS.
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda