Retirement Savings: Is It Time to Rekindle Interest in the Saver’s Credit? social security update
I magine economists saying you need a savings stash six times your yearly paycheck by the age of 50 to help ensure a smooth future retirement but instead, you show up at the retirement gate with pockets emptier than your mail- box on a Sunday. The truth is, a surprising number of mature Americans have virtually no accumulated wealth and are not taking advantage of the two-decades-old Retirement Savings Contribution Credit aka, the Saver’s Credit. So why are so many Americans unaware of this tax credit? The results of the Transamerica Center for Retirement Studies® (TCRS) 23 rd Retirement Survey indicate that public interest may have leveled off in recent years. To put an even finer point on the problem, the Government Accountability Office (GAO) reports that, in low-income house- holds in the 51 to 64 age range, 90 percent had no savings earmarked for retirement in 2019. The TCRS study, with a survey population of 10,000 workers, reports
fore have not taken advantage of this available credit. Although the percent- age of filers taking the credit increased from 4.1 percent in its first year to 6.1 percent in 2019, there is ample room for growth in the number of tax filers able to enhance their retirement savings through this credit. For those interested in learning more about the Retirement Savings Contri- bution Credit, also known as the Saver’s Credit, details on how to access the credit via IRS form 8880 and the income limits that apply are available at IRS.gov . The TCRS website also provides extensive background and reference material. It’s clear that broader use of this savings incentive could go a long way toward alle- viating much of the retirement savings shortfall apparent in the GAO statistics, helping more Americans accumulate wealth before they reach retirement.
that less than half of its survey partici- pants are aware of the Saver’s Credit, even though the IRS provision has been in place since 2002. From a Social Security perspective, the absence of adequate retirement savings is magnified by the simple fact that retire- ment benefits offered by the program are designed to replace significantly less than half of a person’s pre-retirement earn- ings. The IRS Saver’s Credit is designed to help address this by augmenting already existing savings plans, like IRAs, employer-sponsored retirement plans, or Achieving a Better Life Experience (ABLE) accounts. Depending on your adjusted gross income, the IRS Saver’s Credit can be as much as 50 percent of the first $2,000 voluntarily contributed to these types of savings plans. And it’s a direct tax credit rather than a reduction of taxable income. As the TCRS study pointed out, many filers appear to confuse the Saver’s Credit with other tax incentives, and there-
Gerry Hafer Social Security Advisor
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