What is the Retirement Saver's Tax Credit? Do You Qualify?
Saving for retirement may seem difficult or impossible if you don’t have a high income.
Thankfully, the federal government wants to help.
A little-known tax credit called the Retirement Savers Tax Credit could actually pay you to save for retirement.
While the tax credit won’t fully refund you for your retirement contributions, it’s a big incentive to start saving.
Here’s what you need to know about this tax credit and how it works.
What is the Retirement Savers Tax Credit?
Commonly referred to as the Saver’s Credit, the official name for this credit is the Retirement Savings Contributions Credit.
If you make qualifying contributions to a retirement account, this credit may give you a break on your federal income tax bill.
It’s important to note that a tax credit reduces the amount of the tax you owe dollar for dollar with the credit.
This is better than a deduction.
A deduction only reduces your taxable income.
If you’re in the 10% tax bracket, one dollar of a deduction saves you $0.10 in taxes.
On the other hand, a credit saves you $1 in taxes.
Limits on the tax credit
The amount of Keep in mind that IRAs also have a contribution limit. The limit for 2022 is $6,000 – the same as it was for 2021 (the 2023 contribution limit increases to $6,500). 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. Still, the other benefits of maxing out the IRA limit – tax savings and retirement readiness – make it a good idea if you can afford it.
ABLE accounts have a contribution limit of $15,000.
Additionally, rollover contributions do not qualify.
The amount of the credit is a percentage of your qualifying contributions after adjustments for distributions.
The percentage is determined depending on your adjusted gross income and tax filing status.
The maximum credit percentage is 50% of contributions.
The percentage then decreases to 20%, 10% and 0% as your adjusted gross income rises.
In theory, this gives the tax credit a maximum amount of $1,000.
This increases to $2,000 for couples filing a joint return.
The Saver's Credit eligibility requirements for 2023
| Credit | Married Filing Jointly | Head of Household | All Other Filers |
|---|---|---|---|
| 50% of your contribution | Not more than $43,500 | Not more than $32,625 | Not more than $21,750 |
| 20% of your contribution | $43,501 - $47,500 | $36,626 - $35,625 | $21,751 - $23,750 |
| 10% of your contribution | $47,501 - $73,000 | $35,626 - $54,750 | $23,751 - $36,500 |
You must have a tax liability to claim this credit.
It is not refundable.
You still can get a refund of federal income tax withholding or estimated tax payments as long as you have a tax liability.
How to Make Eligible Retirement Contributions
To qualify for the credit, you must make eligible retirement contributions.
In general, contributions to the following types of accounts qualify.
- Traditional or Roth IRAs
- 401(k) plans
- 403(b) plans
- Governmental 457(b) plans
- SARSEP plans
- SIMPLE plans
- 501(c)(18)(D)s
- ABLE accounts where you are the designated beneficiary
Here are the details on how you can contribute to some of the more popular account types from the list above.
Traditional and Roth IRAs
Traditional and Roth IRAs are retirement accounts you can open on your own.
You must have earned income to contribute to an IRA.
2023 and 2024 Traditional IRA Deduction Limits (based on income)
| Filing status | Modified adjusted gross income in 2023 | Deduction limit for 2023 | Modified adjusted gross income in 2024 | Deduction limit for 2024 |
|---|---|---|---|---|
| Single individuals | $73,000 or less | The full amount contributed | $77,000 or less | The full amount contributed |
| $73,001 - $82,999 | Partial deduction | $77,001 - $86,999 | Partial deduction | |
| $83,000 or more | No deduction | $87,000 or more | No deduction | |
| Married filing jointly | $116,000 or less | The full amount contributed | $123,000 or less | The full amount contributed |
| $116,001 - $135,999 | Partial deduction | $123,001 - $142,999 | Partial deduction | |
| $136,000 or more | No deduction | $143,000 or more | No deduction | |
| Married filing separately | Less than $10,000 | Partial deduction | Less than $10,000 | Partial deduction |
| $10,000 or more | No deduction | $10,000 or more | No deduction |
2023 and 2024 Roth IRA Contribution Limits (based on income)
| Filing status | Modified adjusted gross income in 2023 | Contribution limit for 2023 | Modified adjusted gross income in 2024 | Contribution limit for 2024 |
|---|---|---|---|---|
| Single individuals | Less than $138,000 | $6,500 ($7,500 if age 50 or over) | Less than $146,000 | $7,000 ($8,000 if age 50 or over) |
| $138,000 - $152,999 | Partial contribution | $146,000 - $160,999 | Partial contribution | |
| $153,000 or more | No contributions | $161,000 or more | No contributions | |
| Married filing jointly | Less than $218,000 | $6,500 ($7,500 if age 50 or over) | Less than $230,000 | $7,000 ($8,000 if age 50 or over) |
| $218,000 - $227,999 | Partial contribution | $230,000 - $239,999 | Partial contribution | |
| $228,000 or more | No contributions | $240,000 or more | No contributions | |
| Married filing separately | Less than $10,000 | Partial contribution | Less than $10,000 | Partial contribution |
| More than $10,000 | No contributions | More than $10,000 | No contributions |
This usually comes in the form of wages from a job, as reported on a W-2, or self-employment income.
IRA contributions qualify for the Saver’s Credit.
You can choose whether you prefer to make traditional or Roth IRA contributions.
Assuming IRA contribution limits aren’t reduced for you, they should be more than enough to max out the credit.
The Saver’s Credit only cares about 2023 contributions, so you actually have into 2024 to make contributions that count.
This is because 2023 IRA contributions can be made until April 15, 2024.
401(k) plans
If you work at a company that offers a 401(k) plan, some contributions to these plans count.
Elective deferrals, or the money you choose to put into the account yourself, count for the credit.
Unfortunately, employer contributions do not count toward the Saver’s Credit.
A 401(k) may offer traditional or Roth options. Both options qualify for the credit.
Assuming you have access to this account type, these limits are more than enough to qualify for the full Saver’s Credit.
Contributions for 401(k)s are limited to the calendar year.
This means you don't get extra time to contribute as you may with an IRA.
Other employer-sponsored retirement plans
Other employer-sponsored retirement plans also qualify for this tax credit.
Some of these plans work similar to a 401(k), although they may have slightly different rules.
403(b)s are typically found at public schools or 501(c)(3) non-profit organizations.
Governmental 457(b) plans may be found at state and local governments and certain other tax-exempt entities.
SARSEPs are plans set up before 1997, so they’re not as common today.
SIMPLE plans are usually set up by small employers to provide retirement accounts to their employees.
Ask your employer how you contribute to these accounts.
Eligible contributions to these account types should qualify for the tax credit.
Contributions must generally be made in the calendar year to count as contributions for employer-sponsored retirement plans.
This means the deadline for qualifying contributions is most often December 31st of a year.
Exceptions may exist.
ABLE Accounts
ABLE accounts are special tax-advantaged accounts for people with disabilities.
If you contribute to one of these accounts where you are the designated beneficiary, it may qualify for this tax credit.
These are not commonly used, but qualifying individuals may benefit from this account type.
Who Qualifies for This Tax Credit?
To be eligible for this credit, you have to meet specific criteria.
- You must make qualifying contributions.
- You must have a tax liability.
- You have to be 18 years or older.
- You cannot be claimed as a dependent on someone else’s tax return.
- You cannot be a student.
While most of these qualifications are straightforward, one requires more detail.
Who are considered students
If you’re enrolled as a full-time student for any part of five calendar months of the tax year, you’re a student.
This includes being enrolled full-time at a school, taking a full-time, on-farm training course, technical, trade, and mechanical schools.
It does not include the following types of schools or learning:
- On-the-job training courses
- Correspondence schools
- Schools offering courses only through the internet
As long as you meet the above guidelines, you may qualify for the credit.
How to File This Tax Credit
Filing this tax credit is straightforward.
In addition to Form 1040, you’ll need to submit another form with your return.
Simply fill out and file Form 8880, Credit for Qualified Retirement Savings Contributions, with your tax return.
The form is relatively simple if you carefully read the instructions line by line.
However, many people may feel overwhelmed by filling out their own tax returns.
In this case, you may use tax preparation software or an in-person tax preparer.
Both options should fill out this form for you as long as you give them the necessary information required to do so.
Consult an Expert
The Saver’s Credit is relatively straightforward.
That said, taxes confuse many people.
If you need help figuring out if you qualify for the Saver’s Credit, consider consulting a tax preparer or Certified Public Accountant (CPA).
These advisors can tell you if you qualify based on a completed tax year.
They can also advise you so you may potentially qualify for it in the current year if you take tax planning steps.
This potentially lucrative credit may be worth the effort to qualify for it.
Frequently Asked Questions (FAQs) About the Saver’s Credit
As someone new to this tax credit, you may have some of these common questions about it.
Is the Saver’s Credit refundable?
No, the tax credit is not refundable.
You must have a calculated tax amount to claim the credit.
Any excess amount of the credit cannot be used.
Does the Saver’s Credit reduce my taxable income?
As a tax credit, your taxable income isn’t impacted by the Saver’s Credit.
Instead, your tax amount is reduced by the amount of the credit.
Are dependents eligible for the Saver’s Credit?
A person claimed as a dependent on another person’s tax return is not eligible for the Saver’s Credit.
Neither are students or people under the age of 18.
