How to Save $1,000 on Your Taxes by Investing in Your Future


According to a survey conducted by Transamerica Center for Retirement Studies, less than 12% of Americans are aware of what is called The Savers Credit — a way to save up to $1,000 on their income tax. Yes, believe it or not, the government will credit low- and moderate-income taxpayers who save for their retirement. So if you currently do not have a retirement savings plan in place, this information might encourage you to do so. This is how it works.

Qualifying Accounts

To qualify for the Savers Credit, you must make regular contributions to an employer sponsored 401k, 403(b), 457 plan, a Simple IRA, a SEP IRA, a traditional IRA, or a Roth IRA. Keep in mind that while you can claim your contributions to these accounts, you may not claim any contributions made by your employer.

How to Be Eligible

Eligibility for the Savers Credit requires the following three things:

  • In 2012, the maximum adjusted gross income to qualify for the Savers Credit is $57,500 for a married couple filing jointly, $32,125 for a head of household, and $28,750 for others. The maximum credit you can claim diminishes as your income increases.
  • The filer must be 18 years of age or older by the end of the filing year, not a full-time student during the year taking the credit, and not claimed as a dependent on another person’s return.
  • The contributions made to your retirement account must have been made during the tax year for which you are filing.

How Much You Can Save

Of course, before you put the ball in motion, you will want to know how much you can actually save by claiming the Savers Credit. Depending on your income and filing status, you can claim the credit for 50, 20, or 10 percent of the first $2,000 you contribute to a retirement account in that tax year. That makes the maximum credit amounts $1,000, $400, or $200.

A married couple, filing jointly, can claim $2,000. However, if you took a taxable distribution from your account any time during the two years prior to filing your return, that distribution reduces the credit you can claim. Also, the Savers Credit is a credit, not a refund. Claiming it can reduce the tax you owe to zero, but you will not get a refund from it.

How to Claim the Credit

To claim the Savers Credit, you must file a form 1040A, 1040 or 1040NR. You cannot take this claim if you file a 1040EZ. You must also attach Form 8880, “Credit for Qualified Retirement Savings Contributions.”

If you use an online tax preparer like TurboTax (find out how to file your state income tax for free), and you answer all the applicable questions, they automatically apply any credits for which you qualify. However, if you do your own taxes, or pay a human tax preparer, you may want to ask about the credit. Remember, if you are not currently enrolled in a retirement savings plan through your employer then you will want to enroll now to be able to claim the credit for 2013.

Also, according to the IRS website, “many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.” But don’t let that stop you from checking into it. Any amount of a tax credit is better than no credit at all.

Do you think you can take advantage of the Savers Credit? Leave a comment!

  1. ken

    anyone putting their money into any “retirement vehicle” that does not let you have access to your own money without a fee, fine or penalty is not wise. in fact, you probably wont see that money again as the broken US dollar is aiming at collapse which will result in confiscation by the govt. and yes, that has been bantered around by this administration already.

    i will get alot of flack for saying this, however, if you have to pay in any form to even access your own money (as long as there isn’t a black out period happening), it isn’t your money any longer and it is not worth the “tax break” by funding retirement accts which are just life insurance annuites at heart. issued by companies that are apt to go broke when the bond bubble collapses.

    forget that whopping 1K tax credit and save your own money without paying someone you have never met to handle it for the next 20 to 30 to 40 years.

    • Nick

      I agree. Retirement accounts will be confiscated by the government at some point. It’s only a matter of time.

    • Olivia

      So are y’all saying you shouldn’t save for retirement using a ROTH IRA?

    • Hello Olivia,

      I know I’m not Ken or Nick, but I’ll throw my two cents in anyways. Ken and Nick are basically screaming, “the sky is falling!” They may very well be right as our country’s financial health is in poor shape as we enter 2013. But even if the world is about to end, it won’t matter much whether you have money invested in a retirement account or stashed under your mattress. People seem to always be screaming, “the sky is falling!” If you continue to scream loud enough and for long enough, you will eventually be right!

      But I wanted to address some of what Ken said specifically (not picking on Ken, but for the thousands of people who read these articles, it is worth mentioning the truth).

      1. Yes, there is a 10% penalty for withdrawing funds from an IRA, ROTH IRA, 401(k), or 403(b) plan before reaching the age of 59.5. This rule is in place to deter people from withdrawing all of their funds and blowing it on the latest and greatest gadget. With the poor savings rate of our nation as a whole, I personally don’t think it is a problem to put a buffer between people and their retirement funds. After all, the gov’t is giving you a tax break by creating these savings vehicles in the first place.

      2. The type of retirement accounts mentioned in the article (401(k), 403(b), IRA, ROTH IRA) have nothing to do with what you choose to invest the money in. For instance, if you were to open up a $5,000 ROTH IRA with Fidelity, Schwab, or Vanguard (I’m a huge Vanguard fan) you could choose to invest that money in bonds, ETFs, index funds, money market funds, or individual stocks. There is no requirement to invest in life insurance annuities or for someone else to manage the money for you.

      In summary, a ROTH IRA is an excellent vehicle to use for retirement savings. If you have a lot of questions about your financial plan, I would recommend sitting down with a fee-only, fiduciary financial planner. All that fancy terminology just means they don’t sell any financial products. They are compensated for their advice. They receive no back end fees or front loaded fees that have given the industry such a black eye.

      Some might also advice a “financial coach.” These services seems to be popping up everywhere as our nation is in such a debt crisis at the individual and institutional level. I think it is great they are helping people! I’m sure the typical client needs help with budgeting, debt management, cash flow, spending help, etc. But unless a financial coach is properly registered with his state (or the SEC), he is not allowed to dispense specific advice about securities (stocks, bonds). Not trying to be picky, just trying to educate!

      Here are some resources that might come in handy:

    • Nick

      Yes. I won’t put money anywhere the government can easily get to it.

  2. Nice article on a way for Christians to receive additional benefits for saving for retirement. I thought I would add another important point that I didn’t catch in the article. You are still able to contribute to an IRA or ROTH IRA for tax year 2012 up to the filing deadline (April 15, 2013).
    So this means you can take advantage of this credit for 2012 while contributing the money in 2013.

    As an advanced tax strategy, you can actually file your tax return at the end of January and claim the credit and make the contribution with your tax refund (assuming the IRS accepts returns on Jan 30th and it doesn’t take too long to receive your refund)! This isn’t something I would recommend unless you are sure you will complete the IRA or ROTH IRA contribution before the April 15, 2013 deadline.