Savings and Retirement


The major saving incentives in the encourage civilians to save, aswell as invest. Through the incentives, it becomes possible forcivilians to grow towards financial independence. The savingincentives include yearly, billions of dollars, which have an effecton returns from household saving. There are special deductionstowards retirement savings, dividends and interest omission,rescheduling and omission from tax for unrealized financial profits,tax benefits towards higher education and total deductions for realin addition to inflationary sections of interest expenditures (Stein,2010). Savings incentives may be categorized into individual andcorporate tax incentives. Individual incentives involve deductions,exclusion and credits. Illustrations are the deductions for mortgageinterest and personal retirement. Corporate incentives targetcompanies engaged in company projects benefiting the state, likeabating property tax and sales tax omission (Stein, 2010).

Savings incentives fail to encourage low and middle-income householdsto save, because they benefit those from high-incomes. The more aperson’s tax bracket, the more tax incentive they get fromcontributions (Stein, 2010). Since individuals earning high salariesare able to contribute more towards saving incentives, they getbetter tax returns. Most incentives fail to reach those that willbenefit more. The tax code limits the figure taxpayers can add totax-preferred savings accounts on a yearly basis (Stein, 2010). Thecontribution limits depict poorly designed savings incentives becausemany Americans from low and middle-income households contributelesser amounts failing to approach limits. An illustration is thecase of tax returns from retirement, low and middle-earninghouseholds seem to have limited access to retirement incentivesprovided by employers. This is because the returns from theretirement plans are low. Current tax incentives are poorlyformulated because they function as deductions instead of credits.Thus, their benefits are lesser for low and middle-earning householdscompared to for high-income households.

The figure of low and middle-income households taking advantage ofthe saver’s credit is low because a majority of the individualstargeted earns low incomes, the qualifications to apply are ratherstrict and most filers have not heard of the saver’s credit. Thegroup eligible for the saver’s credit is American employees withyearly earnings of $50,000 and below, yet just 23% of the group knowsof the saver’s credit (Strohm, 2014). This amounts to just 5million of the approximate 25 million targeted civilians. In 2013, toclaim the credit, a single person must have earnings of less than$29,500, $44,250 for breadwinners and $59,000 for couples (Strohm,2014). This year the figures have increased. In addition, one oughtto be above 18 years. Theoretically, it implies the possibility oftax breaks of $1000 for single people and $2000 for the married(Strohm, 2014). However, contrary to expectations statistics from2011 show returns amount to just $215 for married filers and $128 forsingles (Strohm, 2014). To get the saver’s credit, filers must use1040A contrary to the 1040EZ used by the target group in filing theirtax (Strohm, 2014).

One can improve their retirement income through increasing individualcontributions towards pension, or workplace pension contributions.Capitalizing on pension contributions during the years prior toretirement improves retirement income via tax relief. A high rate taxcontributor gets tax relief from the government in form of additionalamount towards pension savings. Another strategy is to seek the bestannuity provider. With many pensions, one automatically gets an‘open-market option’. This implies one has the freedom to taketheir collected pension fund to a different provider, ensuring moreannuity rate is attained.


Stein, R. (2010). Taxes and the Family. National Affairs, 2.Retrieved from

Strohm, M. (2014, Mar. 27). Saver’s credit: A tax break nobodyknows about. Retrieved from nobody-knows-about/