Recently, a friend retired at age 64 after a long and successfulcareer in sales. In his first year of retirement, his incomedropped from six figures into the mid fives. To avoid idle time, hecontinues to handle a few accounts and earn some commissions – partof which he socks away in a Roth IRA.

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After preparing his 2015 federal 1040 return in Turbo Tax, hesaid: “Uncle Sam gave me a $200 tax credit that I’ve never seen onmy return before. I don’t even know what it is.” I asked him wherethe credit is shown on the 1040 and he said line 51.

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For the first time in his life, he qualified for the RetirementSavings Contributions Credit – the Saver’s Credit in short.

Based on his reported adjusted gross income (AGI), the federalgovernment matched $200 of the first $2,000 he contributed to hisIRA. Next year, if his income declines more, as he expects, thegovernment may match even more, up to 50% of the first $2,000contributed – $1,000.

Many retired people are stumbling into the Saver’s Credit byaccident, and others are overlooking and perhaps failing to claimit. For retirees and pre-retirees, the credit can be a good reasonto keep making plan contributions as long as possible. In the caseof a Roth IRA, “as long as possible” is for life.

Most retired or semi-retired taxpayers with income below the AGIthresholds are potentially eligible for a Saver’s Credit. The mainrequirement is to have earned income and make a contribution to a401(k), SIMPLE, SEP, Traditional IRA, Roth IRA or other type ofqualified plan. (Rollover contributions don’t qualify.) TheIRS has published the 2016 AGI thresholds andeligibility criteria.

The Saver’s Credit was created in 2001 (and made permanent in2006) mainly to give young people and low-income workers anincentive to contribute their own money to a retirement plan. Themaximum credit is $1,000 per year for a single person and $2,000for a married couple, when both spouses make plancontributions.

However, to receive benefit from the credit, taxpayers must owefederal income tax in the same year, because it isn’trefundable.

Earlier this year, U.S. Senator Ron Wyden (D-OR) introduced inthe Senate the Encouraging Americans to Save Act, whichwould: 1) make the Saver’s Credit refundable; 2) increase the AGIthresholds for eligibility; and 3) facilitate direct deposit of thecredits into the taxpayer’s retirement plan.

Under Wyden’s bill, the credit would be available to marriedfiling-jointly taxpayers with up to $65,000 in AGI. This changepotentially could sweep millions of retirees and pre-retirees intoeligible status, provided they can generate a few dollars of earnedincome each year and qualify for IRA contributions. You can see asummary of the bill at the Congress.govsite.

An informative backgrounder on the credit and legislation,developed by the Center for Retirement Research at Boston College, isavailable.