Saving for retirement is one of the most valuable things you can do in your financial planning. But it's also hard to do. If your income is low, it is hard enough just to cover basic living costs for the here and now, let alone worry about what will happen far in the future.
However, lawmakers know how difficult it is for low-income Americans to be financially secure, and so they have offered some help through tax laws. Pension Savings Credit is a tax break that is available to many people with modest incomes, which provides a way for savers to make the money work harder for them. Better known as Saver's Credit, this provision is designed to give you a boost, even if you can only save modest amounts towards retirement.
Saver's Credit Basics
Saver's Credit is available to taxpayers who contribute to retirement accounts during the year. It includes money that you contribute to an IRA on your own, as well as everything you've diverted from your paycheck to going toward an employer-provided plan at work, such as a 401

Image Source: Getty Images.
There are also some other requirements for claiming credit. Only those 18 years or older who are not full-time students can receive the credit and you must not be required to depend on someone else's tax return. In practical terms, these requirements highlight the intention of the tax break to help those responsible for providing financial support.
The IRS also sets eligibility limits for Saver's Credit eligibility each year. These numbers typically increase with inflation, pushing the various threshold income levels a little higher from year to year.
2020 Income Limits and Credit Amounts
Saver's Credit pays between 10% and 50% of the first $ 2000 in contributions you make. The chart below shows the percentages that apply to credit calculation, depending on your submission status and income level.
Credit Percentage |
Single or Married Separately |
Head of Household |
Gift Joint |
---|---|---|---|
50% of Deposit% of Contributions |
$ 21,251 to $ 32,500 |
$ 31,876 to $ 48,750 |
$ 42,501 to $ 65,000 |
Data Source: IRS.
As an example, say you are married by filing a joint return and contributing $ 1,000 into a retirement account. If your income was $ 50,000, you would be in the 10% range, then your credit would be $ 1,000 times 10% or $ 100. A similar couple with $ 35,000 income would get a larger credit of 50%, and Add up to $ 500.
If you are married, the pension deposits from each spouse are eligible for credit. So to maximize credit, each spouse would save $ 2,000. If their income qualified them for 50% credit amount, each would receive $ 1,000 for a total family savings of $ 2,000.
Encouraging People to Save
Attorneys believed Saver's Credit to give an extra boost to those retirement savings. The IRA and 401 (k) still offer their normal benefits, including immediate tax deductions for traditional IRAs and 401 (k) contributions and tax-free growth for Roth IRA and Roth 401 (k) accounts. Some low-income families do not receive much immediate benefit from ordinary tax benefits in retirement accounts. That makes Saver's Credit an extra incentive to save.
When you don't have a lot of income, it's hard to save. Saver's Credit can match retirement savings efforts, so your money works harder for you by matching them with federal funds. Although you can't save much, Saver's Credit can help you reach your financial goals.