The Saver’s Credit: 9 Tips on How It Works and How to Unlock the Value

If you’re looking to save for retirement and want to maximize your tax benefits, the Saver’s Credit (also known as the Retirement Savings Contributions Credit) is a valuable opportunity. It can help reduce your tax bill and reward you for contributing to retirement savings accounts like a 401(k), IRA, or other qualified plans. But what exactly is the Saver’s Credit? How do you qualify? And how do you claim it?

In this post, we’ll answer the most frequently asked questions about the Saver’s Credit to give you the information you need to take full advantage of this tax-saving opportunity.

Key Takeaways:

The Saver’s Credit rewards low- to moderate-income taxpayers for contributing to retirement savings.
It can reduce your tax bill by 10% to 50% of your contributions, depending on your income.
Eligible retirement accounts include IRAs, 401(k)s, and more.
To claim the credit, file Form 8880 with your tax return.

1. What is the Saver’s Credit?

The Saver’s Credit is a tax credit designed to help low- and moderate-income individuals save for retirement. If you contribute to an eligible retirement plan, you may qualify for a credit of up to 50% of your contributions, which directly reduces the amount of tax you owe.

Unlike a tax deduction, which reduces your taxable income, a tax credit reduces the amount of tax you owe on a dollar-for-dollar basis. This means that this credit can significantly lower your tax liability if you qualify. Learn more about the Saver’s Credit from the IRS.

2. Who qualifies for the Saver’s Credit?

To qualify for the Saver’s Credit, you must meet a few key requirements:

Age: You must be 18 years or older and not claimed as a dependent on someone else’s tax return.
Income Limits: Your income must fall below certain thresholds. These limits vary each year, but for the 2023 tax year, the income limits are as follows:
- Single filers: Up to $36,500
- Married filing jointly: Up to $73,000
- Head of household: Up to $54,750
Retirement Contributions: You must contribute to a retirement plan, such as a 401(k), 403(b), IRA, SIMPLE IRA, or a similar plan. Contributions to pensions or other retirement plans may also qualify.
Tax Filing Status: You need to file taxes as single, married filing jointly, or head of household to be eligible.

Check the IRS guidelines for the most up-to-date eligibility requirements.

3. How much can you get from the Saver’s Credit?

The Saver’s Credit is worth between 10% and 50% of your eligible contributions, depending on your income. Here’s how the percentage works:

50% Credit: If your income is at or below the lowest income threshold, you could receive up to 50% of your retirement contributions as a credit.
20% Credit: For those with slightly higher incomes, you may qualify for a 20% credit.
10% Credit: For individuals who have incomes closer to the upper limits of the qualification range, you might receive a 10% credit.

For example, if you contribute $2,000 to an eligible retirement account and are in the 50% credit bracket, you could receive a $1,000 Saver’s Credit. This credit will directly reduce your tax bill.

4. What retirement accounts qualify for the Saver’s Credit?

The Saver’s Credit applies to contributions made to various retirement savings accounts, including:

401(k) plans (including Roth 401(k)s)
403(b) plans
Traditional IRAs (Individual Retirement Accounts)
Roth IRAs
SIMPLE IRAs
SEP IRAs
Government Thrift Savings Plans (TSPs)
Other employer-sponsored retirement plans

The key here is that the money must be contributed to an eligible plan. Contributions made to regular savings accounts, CDs, or other non-retirement investments do not qualify.

Want to learn about other tax credits that could boost your savings? Check out our guide on Understanding the Child Tax Credit: What You Need to Know to see if you’re eligible for even more benefits!

5. Can you claim the Saver’s Credit if you contribute to a Roth IRA?

Yes, Roth IRAs are eligible for the Saver’s Credit just like Traditional IRAs. The important thing to note is that Roth IRA contributions are made with after-tax dollars, meaning you won’t get a tax deduction in the year you contribute, but you could still claim the Saver’s Credit.

6. How do you claim the Saver’s Credit?

To claim the Saver’s Credit, you need to file Form 8880, Credit for Qualified Retirement Savings Contributions, with your tax return. This form will help you determine how much credit you’re eligible for based on your income and contributions.

Here’s a quick rundown of the process:

Make Eligible Contributions: Contribute to a qualified retirement account during the tax year.
Fill Out Form 8880: Report your contributions and income on Form 8880.
File Your Tax Return: Attach Form 8880 to your Form 1040, Form 1040-SR, or Form 1040-NR when you file your taxes.

You can find Form 8880 on the IRS website here.

7. Can you use the Saver’s Credit in addition to other tax benefits?

Yes! The Saver’s Credit is a nonrefundable tax credit, meaning it can only reduce your tax liability to zero, but it won’t provide you with a refund if the credit exceeds your tax liability. However, it works alongside other retirement-related tax benefits.

For example, you can still benefit from:

Tax deductions for your IRA or 401(k) contributions.
Employer matching contributions to your 401(k).
Other tax credits you may qualify for, like the Earned Income Tax Credit (EITC).

For more information on combining tax credits and deductions, visit the IRS tax credits and deductions page.

8. Can you claim the Saver’s Credit if you don’t owe taxes?

Since the Saver’s Credit is a nonrefundable credit, it can only reduce your tax liability to zero. If you don’t owe any taxes, you won’t be able to claim the credit. However, if you are due for a refund, the Saver’s Credit will not provide you with additional funds beyond your tax refund.

9. Common mistakes to avoid when claiming the Saver’s Credit

Missing the Income Limits: Always double-check the income thresholds for the tax year you’re filing for. If your income is above the limit, you won’t be eligible.
Not Contributing Enough: The credit is based on the amount you contribute. To maximize your benefit, contribute as much as you can to eligible retirement accounts.
Incorrect Form Submission: Ensure you file Form 8880 correctly to claim the credit. Missing forms or incorrect entries can delay your refund or cause you to miss out on the credit.

Lower your tax bill and boost retirement savings

The Saver’s Credit is a great way for individuals and families with lower and moderate incomes to get a little extra help for saving for retirement. By making eligible contributions to your retirement accounts, you could lower your tax bill and boost your retirement savings in the process.

If you think you might qualify, don’t forget to check the income limits, confirm your eligible contributions, and file the necessary forms with your tax return. The Saver’s Credit can help you start saving for your future while reducing your current tax liability.

For more personalized advice on how the Retirement Savings Contributions Credit applies to your situation, consult with a tax professional or financial advisor.

FAQs on the Retirement Savings Contributions Credit

Can a married couple each claim the Retirement Savings Contributions Credit?

Yes, if both spouses make eligible contributions to retirement accounts and meet the income and filing requirements, each spouse can claim the Saver's Credit separately. The credit amount will depend on each individual's contribution and income level.

Can I still claim the Saver's Credit if my employer offers a retirement plan, but I don’t contribute to it?

No, you must personally contribute to an eligible retirement plan, such as an IRA or 401(k), to qualify for the Saver’s Credit. Contributions to employer plans only count if they come directly from your paycheck.

What retirement accounts are ineligible for the Retirement Savings Contributions Credit?

While many retirement accounts qualify, pensions or other non-qualified retirement accounts do not. The credit is only applicable to contributions made to eligible accounts like 401(k)s, IRAs, SIMPLE IRAs, and similar plans.