Email FacebookTwitterMenu burgerClose thin

How to Make the Most of the Retirement Saver’s Credit

Share
Making the Most of the Retirement Saver's Credit

Saving money in a 401(k) or an individual retirement account (IRA) is a smart way to build retirement savings. Not only will your money grow over time, but you won’t have to pay taxes on that money as it grows. You will only pay taxes when you withdraw the money in your retirement. In addition to deferring taxes on your contributions, you may be eligible for a tax credit just for making contributions. That tax credit is called the Saver’s Credit. Let’s see if you’re eligible to use this credit in order to save yourself some money on your federal income taxes.

Who Qualifies for the Saver’s Credit

The Saver’s Credit (formerly called the Retirement Savings Contributions Credit) provides a tax credit for low and moderate-income taxpayers who contribute to a retirement savings account. Your eligibility and how much you can receive will depend on your salary and filing status.

You generally qualify for the Saver’s Credit if you’re 18 or older, you are not a full-time student and no one can claim you as their dependent on their tax return. You also have to make contributions to an eligible retirement account. Eligible accounts include a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP, 401(k), 403(b), 501(c)(18), 457(b) plan or ABLE account.

You cannot take the Saver’s Credit for rollover contributions. You also need to make your contributions before the April filing deadline in order for them to qualify. Any distributions you take from your account will count against the contributions you made.

In addition to these basic requirements, you also have to meet the income guidelines. For the 2018 tax year, which you file by April 2019, single filers can claim all or part of the credit if their adjusted gross income (AGI) is $31,500 or less. A taxpayer filing head of household can claim all or part of the credit if their AGI is $47,250 or less. Taxpayers filing jointly can claim all or part of the credit if their AGI is $63,000 or less.

What the Saver’s Credit Is Worth

Making the Most of the Retirement Saver's Credit

The Saver’s Credit is worth 50%, 20% or 10% of your contributions to an eligible retirement account, up to $2,000 for single filers and heads of household or $4,000 for joint filers. The exact amount you can claim will depend on your AGI. The table below shows the credit rates for different taxpayers.

2023 Saver’s Credit Income Limits

Credit AmountMarried (filing jointly)Head of HouseholdSingle
50% of contributionAGI of $43,500 or lessAGI of $32,625 or lessAGI of $21,750 or less
20% of contribution$43,500 – $47,500$32,625 – $35,625$21,750 – $23,750
10% of contribution$47,500 – $73,000$35,625 – $54,750$23,750 – $36,500
0% of contributionmore than $73,000more than $54,750more than $36,500

Here is how the contribution breaks down for the 2024 tax year.

2024 Saver’s Credit Income Limits

Credit AmountMarried (filing jointly)Head of HouseholdSingle
50% of contributionAGI of $46,000 or lessAGI of $34,500 or lessAGI of $23,000 or less
20% of contribution$46,000 – $50,000$34,500 – $37,500$23,000 – $25,000
10% of contribution$50,000 – $76,500$37,500 – $57,375$25,000 – $38,250
0% of contributionmore than $76,500more than $57,375more than $38,250

How to Claim the Saver’s Credit

You can claim the Saver’s Credit by filling out IRS Form 8880 and attaching it to your 1040 when you file your taxes. You may want to consider working with a tax professional to correctly claim the credit, as well as to make the appropriate calculations. If you miscalculate your adjusted gross income with the rest of your tax filing then it could mess up the amount you’re claiming on the saver’s credit.

Doubling Up on Tax Benefits

Contributing to a tax-deductible retirement account, like a 401(k) or traditional IRA, will decrease your taxable income. So if you can also claim the Saver’s Credit for those contributions, you are doubling your tax benefits.

Just remember that not all retirement accounts take pre-tax money. For example, money that goes in a Roth IRA already had income taxes removed. You can still claim the credit for money you contribute to a Roth IRA, but you do not double your benefits the way you do with a tax-deductible account.

As a reminder, the annual IRA contribution limit for the 2023 tax year is $6,500 if you are under age 50 and $7,500 if you are age 50 or older. For 2024, the contribution limit will increase by $500. You can review and read our overview to better understand the current IRA contribution limits.

Bottom Line

Making the Most of the Retirement Saver's Credit

The Saver’s Credit is often overlooked but it is a great way to save you money on your federal income taxes. The benefits are doubled if you contribute to a tax-advantaged account like a 401(k) or traditional IRA. Just keep in mind that there are a few requirements you must meet in order to qualify for the credit. You need to be age 18 or older, you cannot be a student and no one can claim you as their dependent.

You also need to contribute to an eligible retirement account and have an income below a certain threshold. The threshold varies by filing status. If you need help filing your taxes, you should consider contacting a tax professional. You can also claim the Saver’s Credit using some of this year’s best online tax filing software.

Photo Credit: ©iStock.com/Photodjo, ©iStock.com/jxfzsy, ©iStock.com/Rawpixel

...