Offsetting part of the first $2,000 you contribute
The IRS reminder was focused on a valuable tax credit called the Retirement Savings Contributions Credit or the Saver's Credit.
The Saver's Credit is a tax credit you become eligible for if your income is below a specific threshold and you invest in a qualifying retirement account including a traditional or Roth IRA, 401(k), 403(b), 457 plan or Thrift Savings Plan.
The credit can reduce your tax bill or increase your tax refund on a dollar-for-dollar basis. For example, if you owe $3,000 and get a $1,000 tax credit, your tax bill comes down to $2,000. This is more valuable than a deduction, which only reduces taxable income.
Depending on your income and filing status (single or joint), you may be eligible for the credit.
The following taxpayers can claim the Saver’s Credit:
- Married joint filers who earn $76,500 or less in adjusted gross income
- Heads of household who earn $57,375 or less in adjusted gross income
- Single filers or married filers who file separately and earn $38,250 or less in adjusted gross income
The Interactive Tax Assistant tool for the Saver’s Credit can help you determine if you qualify and find out what specific percentage of contributions you can get back.
As the IRS explained in its reminder notice, you also must be 18 or older, not a full-time student and not claimed as a dependent on anyone else's tax return to be eligible. You also must contribute to your retirement account by the deadline, which is April 15, 2025, if you want to claim the credit for 2024.
You should try to claim this free money if you can because this credit is specifically designed to help people who may struggle to save so they can get a leg up on building the security they deserve in retirement.
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Read MoreHow to save more for retirement
Increasing your retirement savings can be a challenge, especially if your income isn't the highest and if you've been struggling in the post-pandemic economy as inflation hit record highs.
Still, Social Security alone isn’t enough to support you in retirement and you can't work forever. You'll need to find a way to invest for the future.
Automating this process by signing up for contributions to be taken right from your paycheck and put into a 401(k) through your employer can help. Or you can have money moved to your IRA on payday if you don't have a 401(k).
The key is to build your budget in a way that lets you invest at least a little bit each month. If you start early and are consistent, you don't need to save a fortune — especially if the Saver's Credit is able to help you out.
Investing $4,000 a year, for example, leaves you with a nest egg of about $552,394 if you do it for 35 years and earn a 7% return.
Each contribution can make a big impact, so start saving today — and claim that credit so Uncle Sam can help you secure the retirement you deserve.
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