What is the Saver’s Tax Credit?

The Saver’s Tax Credit is a valuable tax break that one qualifies for by contributing to a retirement-savings plan and earning less than a certain amount. While many taxpayers, especially those on the lower end of the income bracket, tend to put their money toward more immediate needs, those who instead put their money away in a retirement account are rewarded by the government with the saver’s credit. This credit is in addition to any tax deductions received for contributions to a Traditional IRA.

Do you know the Saver's Tax Credit? (Image: Flickr)

The saver’s credit is anywhere between 10 to 50% of an individual’s contribution to an employer-sponsored retirement savings plan, to a maximum of $2,000. This means that the saver’s credit will never be more than $1,000. In order to be eligible for the saver’s credit, the taxpayer must be 18 years old or older, and anything other than a dependent or a full-time student. Generally, the lower the income level of the taxpayer, the more money he or she is eligible to save as part of the saver’s credit.

In 2009, those filing as head of household that make up to $24,750 are eligible for 50% credit on their contribution to their retirement savings plan. If they make from $24,751 to $27,000, they are eligible for 20% credit, and from $27,001 to $41,625, they are eligible for 10% credit. Any income levels higher than this are not eligible for saver’s credit. Married couples filing a joint tax return have higher income limits, while those not filing as heads of household are subject to lower limits.