Retirement Contributions Credit or Saver's Credit

What is the Saver's Credit?

Do you make contributions to a retirement plan? In addition to deducting the amount of your qualified contributions, you may be able to claim a tax credit for those same retirement contributions. The Saver's Credit, also known as the Credit for Qualified Retirement Savings Contributions, was designed to help incomes in the lower to middle range. Remember, the lower the income, the bigger the tax break.

How much is the Saver's Credit worth? This tax credit may allow you to reduce your income tax dollar-for-dollar by up to $1,000 or $2,000 for Married Filing Jointly. The exact amount of the Saver's Credit is based on how much money you contributed and what percentage of your contributions qualify. This percentage, or credit rate, of 10%, 20%, or 50% is determined by your AGI or adjusted gross income and tax return filing status. See the tables below for details by tax year.

The Saver's Tax Credit is a non-refundable tax credit, meaning it will only reduce the taxes you may owe and will not increase your tax refund. The maximum contribution used to calculate the amount of the Saver's Credit is $2,000 per person or $4,000 for a couple if filing jointly.

Saver's Credit example: A single taxpayer who made $18,000 in 2022 contributed exactly $4,000 to their retirement account. When they prepare their return, they find they owe exactly $1,000 in federal taxes. On their tax return, they can expect a full credit amount of $2,000 since they are eligible to claim the maximum credit of 50% of their contribution. The credit will not be a refund but will offset any tax liability. For this example, with a tax liability of $1,000 and a credit of $2,000, half of the credit will be used to reduce their tax liability to $0, and the remaining $1,000 will be eliminated.

Do you qualify for the credit for retirement contributions? Sign up for a free eFile.com account so you don't have to figure this out on your own. When you report your retirement information on the tax app, we will automatically calculate and apply the credit if you qualify on IRS Form 8880, Credit for Qualified Retirement Savings Contributions - eFileIT.

See also: Tax Guide for Retirees and IRS Publication 590-A, Individual Retirement Arrangement Contributions. 

2022 Saver's Credit Rates

The Saver's Credit rates below apply for Tax Year 2022. Wondering who qualifies for the Saver's Credit for 2022? When you prepare your 2022 Taxes via the eFile.com tax app, you can be certain to have the right rates calculated and applied for your return. e-File your 2022 Federal and State Taxes by April 18, 2023; now estimate your 2022 Tax Return with the eFile.com Tax Calculator.

^* MFS: Married Filing Separate. MFJ: Married Filing Joint.

In this case study, let's say a couple contributed a combined $1,000 to a retirement account and are filing their taxes as married filing jointly. If the adjusted gross income, or AGI, of the couple were $50,000, the Saver's Tax Credit rate would be in the 10% range. As a result, the credit dollar amount would be $100 or 10% of the $1,000 total retirement contribution. If the same couple's AGI had been $35,000, the Saver's Tax Credit dollar amount would be $500 or 50% of $1,000. For married couples filing jointly, the retirement contribution from each spouse is eligible for the saver's tax credit. In order to max out the Saver's Tax Credit, each spouse would contribute $2,000. If the AGI income qualified them for the 50% credit amount, then each would get $1,000 for a total combined tax savings of $2,000. Remember that the Saver's Tax Credit is a non-refundable tax credit.

2021 Saver's Credit Rates

The rates below apply for the previous year or back taxes for Tax Year 2021 (2020 is below). These can be used for informational purposes; plan your tax return each year that way, you can eFileIT on eFile.com in the Tax Season it's due - don't handle any complicated forms!

2020 Saver's Credit Rates

Use the 2022 Tax Calculator and Estimator and Avoid Tax Surprises.

Retirement Plans that Qualify for the Saver's Credit

Does my retirement plan qualify for the Saver's Credit? You can claim the tax credit for contributing to any of the following retirement plans:

• Traditional IRA; Roth IRA; SIMPLE IRA
• 401(k) plan; SIMPLE 401(k) plan; 403(b) annuity (including voluntary after-tax contributions); 501(c)(18) plan; 457 (Governmental) plan
• Simplified Employee Pension or SEP
• Achieving a Better Life Experience or ABLE.

Saver's Credit Qualifications - Who is Eligible for the Saver's Tax Credit?

You must meet the following requirements in order to qualify for the Saver's Credit:

• You must be at least 18 years old and not claimed as a dependent on someone else's tax return.
• You cannot be a full-time student or have been one for five or more months of the year.

Rollover contributions do not add to or qualify for the credit. When calculating the credit, you must deduct, from the contributions you have made, the amount of any retirement plan or annuity distributions you received in the current tax year and in the previous two tax years. Also, note that foreign income cannot be included in your adjusted gross income for the purposes of calculating this credit. The eFile Tax App calculates all of this for you.

Other Tax Benefits for Retirement Contributions:

• Deduction for IRA Contributions: Even if you get the Saver's Credit, you can still make deductions on your tax return for qualified retirement contributions. The deduction for IRA contributions is an above-the-line deduction, which means that you do not have to itemize deductions to claim it. You can generally deduct the full amount of your qualified contributions up to your contribution limits for the year.
• Contribute to a Roth IRA: Whether or not you qualify for the Saver's Credit, you might consider making your contributions to a Roth IRA. You can also rollover your Traditional 401(k) or Governmental 457(b) plan into a Roth account. Contributions to a Roth IRA are taxable, but you can count your contributions toward the Saver's Credit. The biggest benefit of a Roth IRA is the fact that any capital gains it earns will be tax-free, and your post-retirement distributions will generally be non-taxable. Learn more about the tax benefits of Traditional and Roth IRAs in IRS Publication 590 - Individual Retirement Arrangements.
• ABLE Contributions: For 2018 and later returns, you can use part or all of your Achieving a Better Life Experience (ABLE) account contributions to claim the Saver's Credit if you are the designated beneficiary (eligible person with a disability) and you work. However, rollover contributions from another ABLE account or a Qualified Tuition Plan (QTP) account do not qualify for the credit. In addition, any eligible contributions may be reduced by any recent distributions you received from your ABLE account.

Related Information on Retirement Income and Tax Credits

• Tax Benefits of Retirement Plans
• Minimum Distribution Limits for Retirement Income
• Retirement Plan Contribution Limits
• Taxable Social Security Benefits
• Tax Penalties for Early Withdrawal of Retirement Benefits
• Maximum Pension Plan Contribution Limits
• IRS Publication 907, Tax Highlights for Persons with Disabilities.

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