But it is too valuable — especially if it were refundable — to slip off the agenda
The Saver’s Credit gives a special tax break to low- and moderate-income taxpayers who are saving for retirement. It was introduced in 2001 and was scheduled to expire in 2006. The Pension Protection Act of 2006, however, made the credit permanent and indexed the income thresholds. The Saver’s Credit is in addition to other tax benefits for saving in a retirement account.
However, the Saver’s Credit is too valuable to slip off the agenda, and it could be even more valuable with some measured changes. Depending on adjusted gross income , the household can claim a credit for 50%, 20%, or 10% of the first $2,000 contributed during the year to a retirement account. Thus, the maximum credit for an individual is $1,000, $2,000 for a married couple when each is contributing to a plan. The table below 1 shows the 2020 income limits for married couples, heads of households, and single individuals.
Second, because of interaction with the Child Care Credit, the Saver’s Credit is often not usable for taxpayers with children.Additionally, the design looks a little crazy. As couples move from an AGI of $39,000 to $39,001, their credit rate drops from 50% to 20%. This drop means that the maximum credit for a $2,000 contribution drops from $1,000 to $400. While it makes sense for the credit rate to decline as income rises, the phaseout could be structured more gradually.
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