Long-term savers can capitalize on a little-known tax credit that cuts their IRS bill, even as they add to retirement savings.

Too good to be true? Not according to Congress.

The tax credit, once known as the Retirement Plan Contribution Credit and now known simply as the "Savers Credit," provides a special tax break to low-income and middle-income Americans who are stashing away cash for retirement. Once a taxpayer qualifies, the credit should lead directly to a lower tax bill.

Not many Americans are even aware of the Saver's Credit and that's a shame, as a tax break for retirement savers is, on any level, a positive financial step.

According to the Transamerica Center for Retirement Studies 18th Annual Retirement Survey, over 65% of U.S. career professionals - many of whom could benefit from the tax credit - don't know about the Saver's Credit.

Let's get the word out on the credit, and let's start by taking a closer look at the Saver's Credit and how it might fit your unique tax saving needs.

What Is the Saver's Credit?

Structurally, the Saver's Credit is a dollar-for-dollar subtraction (but not a deduction) on taxes owed to Uncle Sam.

The credit value depends on the amount of retirement plan contributions used to calculate any tax savings. By the numbers, the Saver's Credit is either 50%, 20% or 10% of any qualified taxpayer's retirement contributions (in an IRA or 401(k) plan) up to $2,000 for single filers or $4,000 for Americans filing jointly.

For the 2018 tax year, cap limits on the saver's credits, as measured by adjusted gross income is $63,000 for a married couple filing their taxes jointly, $47,250 for a taxpayer filing as head of household, and $31,500 for all other tax filing categories.

For example, you're a filing as a single individual, and you earned $19,000 last year. You also steered $1,500 to a qualified retirement account.

In that instance, your Savers Credit value (at a 50% credit) would be worth $750.00

According to the IRS, here's how the Saver's Credit breaks down for the most common tax filing categories (for the 2018 tax year.)

Tax Credit

Single Filer

Head of Household

Joint Filers


$19,000 or less

$28,500 or less

$38,000 or less









Saver's Credit Checklist

Check these rules, tips and realities off your list before claiming the Savers Credit for the 2019 tax year:

1. Age limits. To earn the tax credit, the individual or dual filers must be 18 years or older (not a problem for most retirement savers,) can't be full-time student, and must not be claimed as a dependent on another individual's tax return.

2. Retirement plan mandates. There are several caveats on what contributions to a retirement plan can be taken by someone looking to benefit from the Saver's Credit. For instance, the credit is allowable for plan contributions to the following retirement plan vehicles:

3. Calendar limits. Allowable contributions must be made by the end of the tax year by the end of the calendar year. For example, to qualify for a 2019 Saver's Credit, the retirement saver must have made contributions to a qualified plan by Dec. 31, 2019.

There is a grace period for IRA contributions - they're allowed to be made by April 15 of the next calendar year.

4. No "old money" rollovers. The IRS also places limits on what accountants call "new" retirement funds. That means old retirement plan contributions, specifically retirement plan rollovers, aren't allowable per the Savers Credit.

5. No refund. The credit is deemed as 'non-refundable' by the IRS. In other words, the Saver's Credit can significantly reduce your tax burden, but it won't lead to any type of tax refund.

6. No early distributions without repercussions. You'll be nicked by Uncle Sam if you accept any early distributions from a 401(k), IRA or other retirement plan. If that's the case, any tax credit savings can be significantly reduced for anyone who took out early retirement plan distributions.

Which Retirement Accounts Qualify for the Credit?

The Savers Credit can be claimed for your contributions to a 401(k), 403(b), 457 plan, a Simple IRA or a SEP IRA. (You can't claim your employer's contributions to these accounts, however.)

Your contributions to a traditional IRA or a Roth IRA are also eligible for the Savers Credit.

The Saver's Credit can't be carried forward to the next year, and there's no getting a tax refund based only on the amount of the Saver's Credit.

How to Claim the Savers Credit

The IRS is fairly explicit on how retirement savers can claim the Saver's Credit.

Here's the rundown - follow it, and if you're eligible, and get your tax credit:

Use Form 8880. The IRS tax form needed to file for the Saver's Credit is Form 8880. The form is straightforward, and will walk you through the steps needed (and the rules that apply to) the Saver's Credit.

There is no EZ Form. Starting last year, taxpayers could no longer use either IRS tax form 1040EZ or 1040A. Instead, the IRS is mandating that Savers Credit tax filers to use the new 1040 tax form. There is an out for retirement savers who want to amend an old tax return. For years prior to 2018, the Saver's Credit can be amended using either tax form 1040A or 1040EZ.

If you're unsure of exactly how to proceed in claiming the Savers Credit, and you file using a professional tax service like H&R Block (HRB) - Get Report , TurboTax, TaxSlayer or even your local accountant, chances are they'll handle the Savers Credit filing for you.

Still, it's a good idea to check, especially to make sure that tax form 8880 is filed and that you're eligible to receive the Savers Credit in the 2019 tax year, and going forward after that.

If You're Eligible, Grab the Savers Credit

No question, the Savers Credit is a valuable tax break for lower-income and middle-income retirement-minded Americans.

The tax break comes right off the money you owe to Uncle Sam, and there's no reason you can't stash the cash away and use it to save for retirement the same calendar year you earn it.

Uncle Sam doesn't always offer such a generous tax credit, so jump all over it - if you qualify.

It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription toTheStreet's Retirement Dailyto learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? We've got answers.

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