Making Savings Count with a Refundable Saver’s Credit

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The Retirement Savings Contribution Credit, more commonly known as the Saver’s Credit, is meant to help low- and moderate-income families save for retirement by offering a tax credit as high as 50 percent for up to $2,000 in retirement account contributions, or $4,000 for married taxpayers filing jointly. Yet only a small percentage of taxpayers claim it, partly because 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 drop in the bucket among retirement tax subsidies, with an annual cost of about $1.2 billion, which reflects this lack of participation. By comparison, the total cost of other federal tax subsidies for retirement savings is more than $150 billion each year. Most of the financial benefits from retirement tax subsidies, such as deferred taxation for income saved in a retirement account, go to higher-income earners who would likely save anyway. The Saver’s Credit is an exception since it phases out at relatively low-income thresholds: $30,500 for single filers, $45,750 for head of household filers, and $61,000 for married taxpayers filing jointly.

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