I’m always surprised at how little most Americans know about retirement savings. While it’s a highly flawed system, there are still many incentives to save money.
If your employer offers a 401(k)-type plan, for example, most will offer some kind automatic savings plan. You may even have an option of investing in “target-date portfolios” where professional managers pick mutual funds for you.
What if you don’t make much money? There’s another program waiting just for you that will help you save. The “saver’s credit” is available to workers who qualify. It will even cut your federal income taxes.
“The Saver’s Credit is a non-refundable tax credit that may be applied up to the first $2,000 of contributions an eligible worker makes to a 401(k), 403(b) or similar employer-sponsored retirement plan; a traditional or Roth IRA; or an ABLE account,” notes the Transamerica Center for Retirement Studies (TCRS). “The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly.”
Despite this kick starter of a savings program, few workers know about it and use it. Fewer than four in 10 employees employ it to boost their savings.
“Most people face competing financial priorities, and saving for retirement can be challenging,” said Catherine Collinson, president of TCRS. “By lowering their federal income tax, the Saver’s Credit may help make it easier for eligible workers to save.”