Low- and moderate-income workers who save for retirement in 401(k)s and individual retirement accounts may be eligible for a valuable tax credit that could be worth as much as $1,000 for individuals and $2,000 for couples. Here's how to claim the saver's credit on your 2013 or 2014 tax return:
Contribute to a retirement account. The saver's credit can be claimed on up to $2,000 ($4,000 for couples) that is contributed to IRAs, 401(k) plans or similar types of workplace retirement accounts. Workers have until April 15, 2014, to make an IRA contribution that can count toward tax-year 2013. "Don't give up on your deductions and credits for 2013. You have up until your tax filing deadline to make this move," says Lisa Greene-Lewis, a certified public accountant with TurboTax and a contributor to the U.S. News My Money blog. "It's a winning situation because you are saving for your retirement, and that money is going to grow and you are also saving on your taxes."
However, contributions to workplace retirement plans generally need to be made by the end of the calendar year to qualify for the credit. "Employees who are unable to set aside money for  may want to schedule their 2014 contributions soon so their employer can begin withholding them in January," according to a statement from the Internal Revenue Service.
Adhere to the income limits. The saver's credit can be claimed by individuals with incomes up to $29,500 in 2013 or $30,000 in 2014. For heads of household, the income limits are $44,250 in 2013 or $45,000 in 2014. Married couples can earn as much as $59,000 in 2013 or $60,000 in 2014 and still claim the saver's credit. These income limits are adjusted annually to keep pace with inflation.
Calculate your credit. The amount of the credit will be 50 percent, 20 percent or 10 percent of your 401(k) or IRA contributions up to $2,000 ($4,000 for couples), with the biggest credit going to savers with the lowest adjusted gross incomes. To get the 50 percent credit, savers need to have an income below $18,000 for individuals, $27,000 for heads of household and $36,000 for couples in 2014. The 20 percent credit rate applies to individuals earning between $18,001 and $19,500 ($36,001 and $39,000 for couples). And individuals with an adjusted gross income between $19,501 and $30,000 ($39,001 and $60,000 for couples) in 2014 are eligible for a 10 percent credit on their retirement savings.
[Read: Retirement Benefit Changes for 2014.]
Twice the tax breaks. The saver's credit can be claimed in addition to the tax deduction you get for contributing to a traditional 401(k) or IRA. The saver's credit can also be claimed on Roth IRA contributions, but in this case, you would only get the credit and not a tax deduction. For example, consider a married couple in which one spouse works and earns $30,000. If they contribute $1,000 to an IRA, their adjusted gross income will be reduced to $29,000 on their tax return. The couple may also claim a 50 percent credit, which is worth $500, for their $1,000 IRA contribution. "Most are well aware of the tax-deferred nature of saving in a 401(k) or similar plan or the opportunity to save in a Roth IRA, and the fact that there could be a full-on tax credit in the form of the saver's credit above and beyond that saving advantage is almost too good to be true," says Catherine Collinson, president of the Transamerica Center for Retirement Studies. "Whether someone contributes $20 or $50 or $200, it's important to take advantage of that benefit."
You might not get $1,000. Saver's credits worth just over $1.1 billion were claimed on nearly 6.4 million individual income tax returns in 2011. But most retirement savers received small credits, averaging $128 for individuals, $166 for heads of household and $215 for couples. The saver's credit is nonrefundable, so you won't be able to claim it if other credits have already eliminated your tax liability. "You would need to contribute $2,000 as an individual, and the couple would each need to contribute $2,000, so $4000 in total, to get $1,000 or $2,000 as a credit," says Jackie Perlman, a principal tax research analyst for The Tax Institute at H&R Block. And you would need to be below the income cutoffs to get the full 50 percent match. For most people, "You might get a few hundred dollars back on your tax return," Perlman says.