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saver's credit

It’s easy to put off saving for retirement. Your retirement is probably years away and it’s tempting to spend your heard-earned money on things you want now. So it’s no real surprise that the average American has no retirement savings. To help low- and moderate-income Americans save, the U.S. government created the Saver’s Credit. This credit provides a tax deduction for some of your IRA or ABLE account contributions, as long your income falls below a certain threshold.

What’s the Saver’s Credit and How Much Is It Worth?

In order to help Americans save for retirement, the federal government created the Saver’s Credit (originally the Retirement Savings Contributions Credit) in the early 2000s. It’s already possible to deduct contributions that you make to a traditional IRA, but this credit provides even greater incentive. In particular, it is designed to help low- and moderate-income individuals save for retirement.

The Saver’s Credit is worth up to $2,000 ($4,000 if filing jointly). There are three tiers to the credit and exactly how much you earn depends on your filing status and adjusted gross income. The tiers are worth 10%, 20% or 50% of your contributions, up to $2,000.

So if your income qualifies you for the 50% credit tier and you contribute $4,000 to an IRA, you will receive the maximum credit of $2,000 (50% of $4,000 is $2,000). If you contribute more than $4,000, you will also receive the maximum credit of $2,000. If you contribute $2,000 to an IRA, you receive a credit of $1,000 (50% of $2,000). The math is generally quite simple for the Saver’s Credit. You don’t need additional worksheets or calculators as with some other credits.

Another thing to note is that the credit is not refundable. So if the credit pushes your tax liability (how much you owe in taxes for the year) below zero, you will not get a refund for the difference. You will simply have no tax liability.

Eligibility for the Saver’s Credit

You qualify for the credit if you meet these three requirements:

  1. You are age 18 or older.
  2. You’re not a full-time student.
  3. No one claims you as a dependent on their return.

You also need to make contributions to either a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP, 401(k), 403(b), 501(c)(18), 457(b) plan or ABLE account. Rollover contributions do not qualify.

Beyond those things, you need to meet certain income requirements. The credit is meant for low- and middle-income taxpayers, so you cannot claim it if your income is above a threshold. Depending on your exact income, you qualify for either the 50%, 20% or 10% credit level. Below are the incomes for your 2018 taxes, which you’ll file by April 2019.

If your filing status is single, married filing separately or qualified widow(er), your credit amount is

  • 50% if your income is less than $19,000
  • 20% if your income is between $19,001 and $20,500
  • 10% if your income is between $20,501 and $31,500
  • 0% if your income is more than $31,500

If your filing status is head of household, your credit amount is

  • 50% if your income is less than $28,500
  • 20% if your income is between $28,501 and $30,750
  • 10% if your income is between $30,751 and $47,250
  • 0% if your income is more than $47,250

Filers who are married and file a joint return can expect credit amounts of

  • 50% if your income is less than $38,000
  • 20% if your income is between $38,001 and $41,000
  • 10% if your income is between $41,001 and $63,000
  • 0% if your income is more than $47,250

You can also see the income limits in the table below.

2018 Saver’s Credit Income Limits
Credit Amount Single Head of Household Joint Filers
50% of contribution AGI of $19,000 or less AGI of $28,500 or less AGI of $38,000 or less
20% of contribution $19,001 – $20,500 $28,501 – $30,750 $38,001 – $41,000
10% of contribution $20,501 – $31,500 $30,751 – $47,250 $41,001 – $63,000
0% of contribution more than $31,500 more than $47,250 more than $63,000

The 2019 Saver’s Credit

The income thresholds for the credit change each year to keep pace with inflation. If you’re already looking ahead to the 2019 tax year (what you file in early 2020), you can find the income limits in the table below.

2019 Saver’s Credit Income Limits
Credit Amount Single Head of Household Joint Filers
50% of contribution AGI of $19,250 or less AGI of $28,875 or less AGI of $38,500 or less
20% of contribution $19,251 – $20,750 $28,876 – $31,125 $38,501 – $41,500
10% of contribution $20,751 – $32,000 $31,125 – $48,000 $41,501 – $64,000
0% of contribution more than $32,000 more than $48,000 more than $64,000

Other Considerations

IRAs also have a contribution limit. For 2018, the limit is $5,500 for individuals. The limit for 2019 is $6,000. You can also contribute an extra $1,000 if you are 50 or older. So if you’re looking to get the full Saver’s Credit, you do not need to make the maximum contribution to a retirement account. Making a contribution of just $4,000 could get you the full credit.

Starting with 2018, ABLE accounts have a contribution limit of $15,000.

The Takeaway

The Saver’s Credit is a great way for low- and moderate-income individuals or couples to save for retirement while also saving money on their taxes. The credit is worth a maximum of $2,000 ($4,000 is you file jointly) and there are three tiers of the credit. Filers at the lowest income level qualify to receive a credit worth up to 50% of their contributions to a retirement account. As your income increases, the credit for which you qualify is smaller at up to 20% or 10% of your contributions. To help you calculate the credit, make sure you use a good tax software. Most services allow you to file a free return with the the Saver’s credit. Here’s out roundup of the best free tax software.

Photo credit: ©iStock.com/shapecharge

Frank Addessi Born and raised in the center of the known universe, Brooklyn NY, and currently hiding out in the bucolic hills of northeast Pennsylvania writing about personal finance. His expertise includes personal loans, credit cards and retirement. It's not easy living the American Dream but someone has to do it!
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