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Looking to Bolster Plan Participation? Spread the Word on the Saver’s Credit

The Saver’s Credit is a little-known tax credit that is generally available to participants who contribute to retirement plans. In addition to offering automatic enrollment and generous matching contributions to encourage retirement plan participation, employers can consider increasing awareness of this benefit to help squeeze every last ounce of participation out of their plans. An Unknown Tax Benefit But why increase awareness? The simple answer is that this tax credit incentivizes saving, and increased plan participation benefits both employers and savers. (E.g., highly compensated employees may be allowed to make or receive contributions at higher rates if non-highly compensated employees participate at a high rate). And even for plans that don’t need to worry about discrimination testing that limits contributions for highly compensated employees, it’s still rewarding to help employees start their journey toward a secure financial future for their retirement years.

If these criteria are satisfied, the amount of the credit then depends on the saver’s adjusted gross income (AGI) and tax filing status. The credit may be 10%, 20%, or 50% of certain contributions made by the employee, up to $2,000 in employee contributions, for a maximum potential credit of $1,000 per person. A couple preparing their 2020 income tax return under the status of married filing jointly can possibly receive as much as a $2,000 credit.

Credit Rate Married Filing Jointly Head of Household All Other Filers*
50% of your contribution AGI not more than $39,500 AGI not more than $29,625 AGI not more than $17,750
20% of your contribution $39,501 - $43,000 $29,626 - $32,250 $19,751 - $21,500
10% of your contribution $43,001 - $66,000 $32,251 - $49,500 $21,501 - $33,000
0% of your contribution more than $66,000 more than $49,500 more than $33,000

*Single, married filing separately, or qualifying widow(er)

Information provided by the IRS