Many people struggle to set aside the money they need to build up their retirement nest eggs, month by month. Fortunately, a non-refundable tax credit, known as the retirement savings contributions credit, can make it substantially easier to save.
Usually referred to as the saver’s tax credit, it allows individuals and families with modest incomes to enjoy tax breaks above and beyond any deductions that they may receive from contributions to their individual retirement accounts (IRAs) or employer-sponsored plans.
By reducing the person's income tax for the year, the credit offsets the cost of funding a retirement account, ultimately bolstering their long-term savings over time.
Key Takeaways
- A tax credit reduces the amount of taxes owed dollar for dollar. That's better than a tax deduction, which reduces the taxpayer's total income.
- The saver’s credit is available to eligible taxpayers who contribute to an employer-sponsored retirement plan, ABLE plan, or a traditional and/or Roth IRA.
- The amount of the credit is determined by a number of factors, including the person's retirement plan contributions, tax filing status, and adjusted gross income (AGI).
- This credit is not available to people under age 18, full-time students, or anyone claimed as a dependent by another taxpayer.
- You can use Form 8880 to calculate and claim the Saver's Tax Credit.
What Is the Saver’s Tax Credit?
The saver’s tax credit is available to eligible taxpayers who contribute to employer-sponsored 401(k), 403(b), SIMPLE, SEP, thrift savings plans (TSP), or governmental 457 plans. It is also available to those who contribute to traditional or Roth IRAs.
Those who make contributions to these types of accounts on behalf of other people with disabilities and their families (known as ABLE accounts) also are eligible for the saver’s credit.
For the 2023 tax year, the income limits are $73,000 for married couples filing jointly; $54,750 for heads of household, and $36,500 for singles and married individuals filing separately.
For the 2024 tax year, the income limits are $76,500 for married couples filing jointly; $57,375 for heads of household, and $38,250 for singles and married individuals filing separately.
There are also caps in place on how much of your retirement account contributions are eligible for the credits. The maximum contribution amount eligible for those filing as a head of household is $2,000. The maximum for married couples filing jointly is $4,000. As a result, the maximum credit claimed for heads of household is $1,000 (50% x $2,000) and $2,000 for married couples filing jointly (50% x $4,000).
Who Is Eligible?
To be eligible for the saver’s credit, an individual must be at least 18 years old by the end of the applicable tax year and cannot be claimed as a dependent on another's tax return. Also, they may not matriculate as a full-time student during the tax filing year.
For the 2023 tax year, an individual’s adjusted gross income (AGI) must not exceed the following limits:
| 2023 Income Limits for Saver's Credit | |||
|---|---|---|---|
| Credit Rate | Married Filing Jointly | Head of Household | All Other Filers |
| 50% of your contribution | AGI not more than $43,500 | AGI not more than $32,625 | AGI not more than $21,750 |
| 20% of your contribution | $43,501–$47,500 | $32,626–$35,625 | $21,751–$23,750 |
| 10% of your contribution | $47,501–$73,000 | $35,626–$54,750 | $23,751–$36,500 |
| 0% of your contribution | More than $73,000 | More than $54,750 | More than $36,500 |
As the charts above illustrate, the lower an individual’s AGI is, the higher the saver’s credit becomes.
For example, Jane, whose tax-filing status is single, has an AGI of $19,200 for the 2024 tax year. She contributes $800 to her employer-sponsored 401(k) plan, plus $600 to her traditional IRA. Jane is therefore eligible for a nonrefundable tax credit of $700 [($800 + $600 = $1,400) × 50%].
The Effect of the Saver’s Tax Credit
Claiming a saver’s credit when contributing to a retirement plan can reduce an individual’s income tax burden in two ways. First, the contribution to the retirement plan qualifies as a tax deduction. As a bonus, the saver’s credit reduces the actual taxes owed, dollar for dollar.
Consider the following example: Jill, a married retail clerk, earned $38,000 in 2024. That year, she contributed $1,000 to her IRA, while her unemployed husband generated zero earnings. After deducting her IRA contribution, the AGI shown on her joint return is $37,000. In this case, Jill is entitled to claim a 50% credit of $500 for that IRA contribution.
How to Claim the Saver’s Tax Credit
Taxpayers who contribute to qualified employer-sponsored retirement plans, IRAs, or ABLE plans are required to complete IRS Form 8880 to claim the Saver's Tax Credit. Taxpayers whose income does not exceed the limits for their tax filing status can use this form to report their and their spouse's total contributions to claim the credit.
The saver’s credit was initially made available for tax years 2002 to 2006 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). It became permanent under the Pension Protection Act of 2006 (PPA).
Users enter their total contributions and adjusted gross income to determine the amount of their credit. Once calculated, they must enter the credit amount on Form 1040 and then file Form 8880 with their return.
When Are Retirement Savings Not Eligible?
Any money contributed to a retirement account that exceeds the allowable limit must be divested from the account within a specific time frame. The returned portion of the contribution is not eligible for the saver’s credit. Similarly, if an individual changes jobs and consequently rolls money over from one retirement account into another—say, from an employer-sponsored 401(k) to a traditional IRA—then that contribution is likewise ineligible for the saver’s credit.
How Can I Get the Saver’s Tax Credit?
To be eligible for the Saver's Tax Credit, you must be at least 18 years old, not a full-time student during the tax filing year, and not claimed as a dependent on another's tax return. Your adjusted gross income (AGI) must not exceed the Saver's Tax Credit limit for your filing status, and you must have made contributions to a qualified retirement or ABLE plan for the tax filing year. To claim the credit, file Form 8880 with your tax return.
Who Qualifies for the Saver’s Tax Credit?
The saver's tax credit is designed to help people with modest incomes save for retirement. It does this by deducting from their income taxes some portion of the amount they contribute to retirement accounts.
For the 2023 tax year, the income limits are $73,000 for married couples filing jointly; $54,750 for heads of household, and $36,500 for singles and married individuals filing separately.
For the 2024 tax year, the income limits are $76,500 for married couples filing jointly; $57,375 for heads of household, and $38,250 for singles and married individuals filing separately.
How Much Is the Saver’s Tax Credit?
The Saver's Tax Credit is either 10%, 20%, or 50% of the total amount contributed to a qualified retirement plan (QRP). The credit is based on the contribution amount and how much of that total qualifies for the credit. Those with adjusted gross incomes (AGI) near the limit, in the upper tier of qualifiers, receive 10% credit, whereas AGIs in the middle and bottom tiers receive 20% and 50%, respectively. The credit cannot exceed $2,000 for married filing jointly filers and $1,000 for single filers.
The Bottom Line
The saver’s credit can effectively boost an individual’s retirement savings power. Those who qualify for this credit and don’t capitalize on this opportunity are squandering a simple way to add significant value to their nest eggs.
Article Sources
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Internal Revenue Service. “Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs).” Pages 45-46.
Internal Revenue Service. "2023 Form 8880."
U.S. Congress. “H.R.1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."
Internal Revenue Service. “Retirement Savings Contributions Credit (Saver’s Credit).”
Internal Revenue Service. "401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000."
U.S. Congress. “H.R.1836 - Economic Growth and Tax Relief Reconciliation Act of 2001." Section 618.
U.S. Congress. “H.R.4 - Pension Protection Act of 2006."
Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)." Page 33.
Internal Revenue Service. "401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000."
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