The Saver's Credit (Retirement Savings Contributions Credit): Save More, Pay Less Tax
After more than 15 years helping individuals and families prepare their taxes, I can say with confidence that one of the most overlooked—and underrated credits available is the Saver's Credit. Also known as the Retirement Savings Contributions Credit, this tax credit is designed to reward low- to moderate-income taxpayers for something they're already encouraged to do: save for retirement.
What is the Saver's Credit?
The Saver's Credit is a non-refundable tax credit available to qualifying taxpayers who make contributions to eligible retirement plans, including:
- Traditional and Roth IRAs
- 401(k), 403(b), 457(b), and other workplace retirement plans
- SIMPLE and SEP IRAs
- ABLE accounts for eligible individuals with disabilities
Unlike deductions, which reduce taxable income, a tax credit reduces your actual tax liability, dollar for dollar. Depending on income and filing status, the credit may be worth 10%, 20%, or 50% of the first $2,000 in contributions ($4,000 for married couples filing jointly). The maximum credit available is $1,000 for individuals and $2,000 for married couples.
Who Qualifies?
To qualify, your adjusted gross income (AGI) must fall below the following thresholds:
- Single filers: $38,250
- Head of household: $57,375
- Married filing jointly: $76,500
(*These limits are indexed for inflation and subject to annual updates by the IRS.) In addition, taxpayers must:
- Be age 18 or older
- Not be claimed as a dependent on another person's tax return
- Not be a full-time student during the tax year
If you meet these conditions and made retirement contributions during the year, there's a good chance you can benefit.
How Much Can You Get?
The Saver's Credit is calculated as 10%, 20%, or 50% of your retirement contributions, up to $2,000 ($4,000 if married filing jointly). The percentage depends on your income and filing status.
Key Planning Considerations
- The credit is non-refundable, meaning it can reduce your tax liability to zero, but it will not result in a refund beyond what you've already paid.
- Contributions must be made by the tax filing deadline, typically April 15 of the following year.
- Form 8880 must be included with your federal income tax return to claim the credit.
- Roth IRA contributions are eligible, even though they are made with after-tax dollars.
How to Claim the Credit
If you're using FileYourTaxes.com, the good news is, it's all calculated for you automatically! If your return qualifies, Form 8880 will be included to ensure the correct credits are applied.
Filing on Paper?
You'll need to:
- Prepare Form 1040 and applicable schedules.
- Complete Form 8880 Credit for Qualified Retirement Savings Contributions
- Include required documentation, like your federal copy of any Form W-2s you have.
- Confirm that your income and eligibility meet IRS guidelines
