Saving for retirement is one of the most crucial financial steps you can take to secure your future. However, many lower- and moderate-income taxpayers may find it challenging to set aside money for retirement. Fortunately, the IRS offers an incentive to help: the Saver’s Credit. This tax credit directly reduces the amount of tax you owe, making it easier to grow your retirement savings.
What Is the Saver’s Credit?
The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is designed to encourage retirement savings by offering eligible taxpayers a tax credit for contributions to qualified retirement accounts. This credit is especially beneficial because it provides a dollar-for-dollar reduction in your tax liability.
Watch This Video to Learn More
Before we dive deeper, watch this short video explaining the Saver’s Credit and how you can claim it:
How the Saver’s Credit Works
When you contribute to a qualifying retirement account—such as a traditional or Roth IRA, 401(k), 403(b), or similar plan—you may be eligible for a credit worth up to 50% of your contribution. However, the percentage depends on your income level and filing status.
Credit Percentage Breakdown
| Filing Status | Adjusted Gross Income (AGI) | Credit Rate |
| Single | Up to $21,750 | 50% |
| $21,751 – $23,750 | 20% | |
| $23,751 – $36,500 | 10% | |
| Married Filing Jointly | Up to $43,500 | 50% |
| $43,501 – $47,500 | 20% | |
| $47,501 – $73,000 | 10% | |
| Head of Household | Up to $32,625 | 50% |
| $32,626 – $35,625 | 20% | |
| $35,626 – $54,750 | 10% |
The maximum credit you can receive is $1,000 for individuals and $2,000 for married couples filing jointly. However, it is important to note that the credit is non-refundable, meaning it can reduce your tax liability to zero but will not result in a refund if it exceeds your tax owed.
Who Qualifies for the Saver’s Credit?
To claim this valuable credit, you must meet the following requirements:
- Be at least 18 years old at the end of the tax year.
- Not be a full-time student during the tax year.
- Not be claimed as a dependent on another person’s tax return.
- Have an adjusted gross income (AGI) within the eligibility limits mentioned above.
Additionally, your contributions to retirement accounts must be voluntary and made during the tax year. Contributions for the 2024 tax year can be made up until April 15, 2025, if contributed to an IRA.
Example Calculation
Let’s look at an example to understand how this works:
Sarah and Mark, a married couple filing jointly, have an adjusted gross income of $48,000. Each contributes $1,250 to their IRAs, totaling $2,500 in retirement contributions.
Since their income qualifies them for a 20% credit, their Saver’s Credit is calculated as follows:
$2,500 x 20% = $500 tax credit.
This $500 directly reduces their tax liability, making their retirement savings even more beneficial.
Important Considerations
1. Retirement Withdrawals Reduce Eligible Contributions
If you take distributions from your retirement account within a certain “testing period,” it may reduce the amount of your eligible contributions.
2. Combine with Other Tax Benefits
The Saver’s Credit can be claimed in addition to other tax advantages of retirement savings, such as tax-deductible IRA contributions or employer 401(k) matches.
3. Claiming the Credit
To claim the Saver’s Credit, you must complete IRS Form 8880 and attach it to your tax return. If you use tax software, it will typically calculate the credit for you once you enter your retirement contributions.
Start Saving Today!
The Saver’s Credit is a powerful tool to help you build a secure retirement while reducing your tax bill. If you qualify, be sure to take advantage of this credit when filing your taxes. Not sure if you’re eligible or need help maximizing your retirement benefits? Contact our office today for expert guidance!
