Retirement has gotten harder for low-income Americans.
In July, the Government Accountability Office studied the impact of tax-advantaged retirement accounts. In doing so, they found that the disparity in retirement savings between low-income and high-income workers between ages 51 and 64 grew significantly between 2007 and 2019. This means people nearing retirement today are in a tighter financial position than they were 15 years ago, but a little known tax incentive can help low-income workers catch up.
To plan for retirement and taxes, talk to a financial advisor today.
The Saver’s Credit
But tax credits can definitely help, and the GAO recommends emphasizing a little-known tax benefit known as the Retirement Savings Contributions Credit (the Saver's Credit).
The Saver's Credit is a low-income tax credit for making contributions to an IRA or employer-sponsored retirement plan. Households can receive a nonrefundable credit worth up to $2,000/$4,000 individual/joint based on how much they contributed to a qualifying retirement account over the past year. Since this is a low-income credit, it is worth more money the less a household makes. It phases out entirely for households making more than $36,500/$73,000 individual/joint.
Given that households only received an average $187 under this credit, far less than the maximum $2,000 per individual, there's good reason to think that many people simply don't know the Saver's Credit exists.
A financial advisor can help you maximize your income and minimize your taxes. Talk to an advisor today.
Upcoming Changes to the Saver’s Credit
Starting in 2027 the Saver's Credit will become the Saver's Match. Under the reformed credit, the IRS will issue a fully refundable credit directly into a taxpayer's retirement account based on a taxpayer's existing contributions. The Treasury is even required to prepare a series of promotional plans by 2026, to ensure that the public knows about the new Saver's Match program.
Meanwhile, households below the income cap should make sure that they take this credit each year. It can help make retirement savings considerably easier.
Retirement Savings Tips
For low-income households, preparing for retirement can be a serious challenge. That doesn't mean it's impossible though. Here are a few strategies that you can use to make this process much easier.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
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