John E. Chapman
Chief Executive Officer
Key Point Regarding the Tax Saver’s Credit Article Below:
Throughout the next month, Clearwater Capital Partners will provide a concise one-page communication for your employees, which you can post on your intranet, HCM system, or distribute directly. In addition, we’ll be uploading a recorded video to your company’s financial wellness page. While this tax credit may not apply to all employees, it could be highly relevant to their family members. Sharing this information helps raise awareness and supports a critical demographic in taking steps toward improved financial wellness.
Understanding the Tax Saver’s Credit:
A Valuable Incentive for Retirement Savings
The Tax Saver’s Credit, also known as the Retirement Savings Contributions Credit, is a valuable but often overlooked incentive that can significantly boost retirement savings for low- to moderate-income taxpayers. Introduced in 2002, the Saver’s Credit is designed to encourage lower wage earners to contribute to retirement plans, providing a direct reduction in their federal tax bill based on the amount they save.
What Is the Saver’s Credit?
The Saver’s Credit is a non-refundable tax credit available to eligible taxpayers who make contributions to qualified retirement accounts, such as a 401(k), IRA, or other similar plans. Unlike a tax deduction, which reduces the amount of income subject to taxation, a tax credit directly reduces the amount of tax owed, making it particularly beneficial.
For the 2024 tax year, the credit can be up to $1,000 for individuals or $2,000 for married couples filing jointly, depending on the amount contributed and the taxpayer’s adjusted gross income (AGI). The credit is calculated as a percentage of the amount contributed, with the percentage determined by the taxpayer’s income level.
Eligibility Criteria
To qualify for the Saver’s Credit, taxpayers must meet certain requirements:
- Income Limits: For 2024, the income limits to qualify for the Saver’s Credit are as follows:
- Single filers: AGI up to $36,500
- Head of household: AGI up to $54,750
- Married filing jointly: AGI up to $73,000
These limits are adjusted annually for inflation.
- Age: The taxpayer must be at least 18 years old.
- Dependency Status: The taxpayer cannot be a full-time student or claimed as a dependent on someone else’s tax return.
Retirement Plan Contributions: The credit applies to contributions made to a traditional or Roth IRA, 401(k), 403(b), 457(b), or certain other retirement plans. Contributions to ABLE accounts for individuals with disabilities also qualify.
How the Credit Is Calculated
The Saver’s Credit is calculated as a percentage of the retirement plan contributions, up to $2,000 per individual ($4,000 for married couples). The credit rate can be 50%, 20%, or 10% of the contributions, depending on the taxpayer’s AGI.
For example:
- 50% Credit: Taxpayers with an AGI of $21,750 or less (single filers) or $43,500 or less (married filing jointly) can receive a credit of 50% of their contributions, up to a maximum of $1,000 ($2,000 for couples).
- 20% Credit: Taxpayers with an AGI between $21,751 and $23,750 (single filers) or $43,501 and $47,500 (married filing jointly) are eligible for a 20% credit.
- 10% Credit: Taxpayers with an AGI between $23,751 and $36,500 (single filers) or $47,501 and $73,000 (married filing jointly) can receive a 10% credit.
Maximizing the Saver’s Credit
The Saver’s Credit is in addition to other tax benefits for retirement savings, such as tax deductions for traditional IRA contributions or the tax-free growth of Roth IRA contributions.
It’s important to note that the Saver’s Credit is non-refundable, meaning it can only reduce a taxpayer’s tax liability to zero; any excess credit is not refunded. Therefore, it’s most beneficial for those who have some federal tax liability.
The Impact of the Saver’s Credit
Many eligible taxpayers are unaware of the credit, and as a result, miss out on this opportunity to enhance their retirement savings.
For low- and moderate-income workers, especially those who may struggle to save for retirement, the Saver’s Credit can make a significant difference. By reducing their tax burden, the credit effectively makes it more affordable to contribute to retirement accounts, helping to build a more secure financial future.
SECURE 2.0 Outlines Changes to the Saver’s Credit
In recent years, there has been growing recognition of the need to improve retirement security, particularly for lower-income workers. Legislation like the SECURE 2.0 Act, which introduces changes to the Saver’s Match program aims to build on the foundation of the Saver’s Credit. Beginning in 2027, government funded matching contributions will be directly deposited into the retirement accounts of eligible workers, focusing primarily on lower-income workers, and aimed at further incentivizing retirement savings.
As these changes take effect, it will be crucial for employers, accountants, financial advisors, and policymakers to educate workers about these benefits. Increasing awareness and understanding of the Saver’s Credit can help more people take advantage of this valuable incentive, ultimately contributing to greater retirement security for millions of Americans.
“It doesn’t cost employers anything, but they need to ensure
their employees are informed enough to take advantage.”
– Karie OConnor, Director of Institutional Advisory Services
Source: IRS.GOV
Cybersecurity and ERISA: Compliance and Protection Webinar
Recently, the team at Clearwater Capital Partners collaborated with two external partners to present and record a Webinar addressing the importance of Cybersecurity efforts in the retirement plan realm. A link to that recording can be found here (include link or attachment)
In this webinar, you will gain valuable insights from industry leaders on critical topics such as ERISA compliance, cybersecurity, and litigation. The session is moderated by Karie OConnor, Director of Institutional Services at Clearwater Capital Partners, featuring Lisa Van Fleet Partner at BCLP Law, who shares her extensive knowledge and best practices on these subjects.
The discussion further delves into the intricacies of retirement plan provider oversight and vendor security standards, with insights from Jason Wroblewski, Regional VP of Ascensus.
We hope you find this information useful as you think about Cybersecurity and the importance of keeping participant retirement plan data safe. If we can be of assistance by providing resources for your employees or connect you with partners who help businesses assess their current practices, and help implement policies and controls, please do not hesitate to reach out for more information.
This webinar is for informational purposes only. We recommend you consult your provider with any questions to support your security efforts around retirement plans. Karie Oconnor is an employee of Clearwater Capital Partners. Lisa Van Fleet and Jason Wroblewski are not clients of Clearwater Capital Partners. No compensation was provided to Ms. Van Fleet or Mr. Wroblewski in exchange for their participation or comments.
Please reach out to your plan advisor with questions, and more information.
