February 4, 2014
Retirement Tax Credit for Low Earners
The IRS effectively gives money away to low-income Americans who save for retirement.
Workers meeting the agency’s income requirements can receive a Saver’s Tax Credit equal to as much as half of their total deposits into a 401(k) or IRA. The lower one’s income, the bigger the credit.
The program, which was made permanent in 2006, gives a nice boost to the nation’s lowest-paid workers, who are also most vulnerable in retirement. And not taking advantage of the credit, said Jim Blankenship, a financial planner in New Berlin, Illinois, “is a lot like giving up an employer match for a 401(k).”
Low-income workers do just that, a previous study found: 40 percent decline to participate when their employer offers a 401(k). But the Savers Tax Credit may provide another avenue to this under-covered population.
The annual income requirements for the credits, shown in the following table, apply to calendar year 2013 tax filings due April 15. …