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The Retirement Savings Contributions Credit, or saver’s credit for short, gives a tax break to low- and moderate-income taxpayers who contribute to certain retirement accounts.
So, by building your retirement nest egg for financial security when you’re ready to retire, you also save money on your income taxes.
If you’re wondering whether you qualify for this tax credit, here’s how it works, who can claim it, and more.
Read more: Here are 7 free tax filing options
How the saver’s tax credit works
The saver’s tax credit lets eligible taxpayers claim 10%, 20%, or 50% of their first $2,000 in retirement savings contributions to reduce their tax liability. The maximum credit amount you can receive is $1,000 if you’re single or $2,000 if you’re married filing jointly.
Your credit amount will vary depending on your adjusted gross income (AGI.)
In addition to meeting income requirements, you’ll also need to contribute to one or more of the following retirement savings accounts to qualify.
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Traditional IRA
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Roth IRA
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401(k) retirement plan via your employer
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403(b) (elective salary deferral or voluntary after-tax contribution)
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Governmental 457(b)
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SARSEP plan
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SIMPLE IRA
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501(c)(18)(D) plan
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ABLE account (for which you’re the designated beneficiary)
The saver’s credit is a nonrefundable tax credit, meaning claiming it can reduce your tax liability to zero but can’t generate a tax refund. Additionally, if you took a distribution from your retirement account within two years before claiming this credit, it will reduce your credit amount.
Read more: Tax credit vs. tax deduction: What’s the difference and which is better?
Who can claim the saver’s credit?
You’ll need to meet some eligibility requirements to claim the saver’s credit. You must be 18 or older, not claimed as a dependent on someone else’s tax return, and not a full-time student. The IRS defines a student as a person who was enrolled full-time at a school or in an on-farm training program for any part of five calendar months in the year.
Income limits also apply and vary depending on your tax filing status. Here are the adjusted gross income requirements for the 2023 tax year. Use this table to help calculate the amount of the credit when filing your taxes in 2024.
Saver’s credit examples
Bill is a single filer. He earned $23,000 and contributed $2,000 to his 401(k) during the 2023 calendar year. His 401(k) contribution reduces his adjusted gross income to $21,000, so he’s eligible for the 50% contribution credit. Bill’s total saver’s credit would be $1,000.
Mary and Jim are a married couple filing a joint return. Mary earned $20,000 and contributed $2,000 to her IRA in 2023. Jim earned $23,000 and contributed $2,000 to his 401(k). The couple’s combined adjusted gross income is $39,000, so they qualify for a credit equivalent to 50% of their retirement contributions. Mary and Jim’s total saver’s credit would be $2,000.
Read more: Everything you need to know to claim the child tax credit, dependent care credit, and earned income tax credit
Frequently asked questions (FAQs)
How do you claim the saver’s tax credit?
If you meet income and other requirements and are eligible for the saver’s tax credit, you can claim this credit by completing IRS form 8880, Credit for Qualified Retirement Savings Contributions.
What type of retirement contributions don’t qualify for the saver’s tax credit?
Rollover contributions or contributions your employer makes toward your retirement savings don’t qualify for the saver’s tax credit.