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The Saver's Credit: What Does It Do for Saving?

The Retirement Savings Contribution Credit, or “saver's credit,” which was introduced in the Economic Growth and Tax Relief Reconciliation Act of 2001, allows filers with low and moderate incomes to reduce their federal income tax liability via a tax credit by making eligible contributions to a retirement or savings vehicle. This AARP Public Policy Institute paper by Lisa Southworth and John Gist uses detailed examples to show that the saver's credit has great potential to effectively target a retirement savings tax incentive to low- and middle-income taxpayers, including a substantial number of filers over age 50. It concludes that Congress could improve the credit by making it refundable, expanding eligibility, smoothing the credit rate drops, and supporting public education efforts in order to maximize the use of this incentive to save. (8 pages)

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