75 percent of eligible households ignore this retirement tax credit

In less than six months, it will be income-tax season again. And as in years past, millions of taxpayers likely will miss the opportunity to slash their tax bill by up to $2,000 simply because they overlook a little-known federal tax break.

According to the Internal Revenue Service, the Saver’s Credit is worth 10 percent, 20 percent or even 50 percent of your retirement plan contributions up to $2,000 (or $4,000 for married people filing joint tax returns).

And yet, just 25 percent of workers in households that earn less than $50,000 are even aware of this credit, according to a survey by the Transamerica Center for Retirement Studies.

Your eligibility for the credit — and the size of the break you will receive — depends largely on your income and tax filing status, however. To be eligible for the Saver’s Credit, you must:

  • Be an adult who is not a full-time student and not claimed as a dependent on someone else’s tax return.
  • Have an adjusted gross income of no more than $31,500 (or $63,000 for married people filing jointly; or $47,250 for people filing as heads of household).
  • Contribute to a certain type of retirement plan (see below).

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RELATED: Check out the most expensive cities to live in the world: 

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18 most expensive cities to live in the world in 2018
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18 most expensive cities to live in the world in 2018

18. Yokohama, Japan.

17. Jerusalem, Israel.

16. Busan, South Korea.

15. Copenhagen, Denmark.

14. Tel Aviv, Israel.

13. Beijing, China.

12. Stavanger, Norway.

11. Hong Kong, Hong Kong.

10. Shanghai, China.

9. Oslo, Norway.

8. Seoul, South Korea.

7. Tokyo, Japan.

6. Luanda, Angola.

5. Bern, Switzerland.

4. Basel, Switzerland.

3. Geneva, Switzerland.

2. Zurich, Switzerland.

1. Caracas, Venezuela.

Kilfedder said, "The economic situation in Venezuela has become increasingly volatile with inflation reaching an astounding 7,000 (seven thousand) percent in the year to March 2018 and 1,800 percent over the last six months alone. The cost of goods has increased exponentially as the economic and political situation has deteriorated and despite the plummeting value of the Bolivar, Caracas sits at the top of our cost of living rankings."

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The percentage of your retirement contributions eligible for the Saver’s Credit also depends on your income. Click the IRS link above for a breakdown.

Contributions to various types of retirement plans are eligible for the Saver’s Credit:

  • Traditional IRA
  • Roth IRA
  • 401(k)
  • SIMPLE IRA
  • SARSEP
  • 403(b)
  • 501(c)(18)
  • Governmental 457(b) plan

Failing to take advantage of such tax breaks is No. 1 among the “5 Blunders You’re Making When Investing for Retirement.” As we explain:

Putting your retirement money in a nonretirement bank account, CD or brokerage account isn’t going to cut it. These options all share a glaring weakness: They offer no tax advantages to the saver.

More from MoneyTalksNews:
Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple 
Ask Stacy: How Do I Invest for Retirement Without Risk? 
7 Tips for Stress-Free Retirement Plan Investing

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