Posted by Carmen Garcia

The Saver's Credit: What Is It & How It Works

The Saver's Credit: What Is It & How It Works

Formerly known as the retirement savings contribution credit, the saver's credit offers a special tax reduction for low and modest-income taxpayers who save for their retirement. This credit is in addition to other tax benefits for saving in a retirement account. If you qualify, a savings loan can reduce or even eliminate your tax bill.

Unfortunately, many qualified taxpayers do not take advantage of this vacation period because they are unaware of it. Indeed, a recent survey conducted by Transamerica Center for Retirement Studies shows that only 12% of American workers whose annual family income is less than $50,000 knows about saver's credit.

How can the Saver's Credit reduce my tax bill?

Depending on your adjusted gross income and your filing status, you can claim a credit of 10%, 20%, or 50% of the first $2,000 you contribute to a retirement account during the year. Therefore, the maximum credit amounts that can be claimed are $200, $400, or $1,000.

  • The maximum credit amount a couple can claim together is $2,000.

  • However, if you and/or your spouse withdrew a taxable distribution from your retirement account during the two years preceding the filing due date (including any extensions), that distribution will reduce the amount of the saver's credit due to you.

  • The saver's credit is a "non-refundable" tax credit. This means that this credit can reduce the tax due to zero but cannot provide a tax refund.

What is the saver's credit?

The retirement savings contribution credit, abbreviated as "Saver's credit," is a tax credit of up to $1,000 ($2,000 if married filing jointly) for low and middle-income taxpayers who contribute to a retirement account.

Who can apply for a saver's credit?

You are eligible for Saver's Credit if you are at least 18 years old, not a full-time student, and you are not listed as a dependent on someone else's tax return.

But that doesn't necessarily mean you will get it - you must also make a retirement plan or IRA contribution and meet the adjusted gross income limits set by the IRS each year.

If your adjusted gross income exceeds any of these limits, you are not eligible for the saver's credit:

  • $65,000 for married filing jointly in 2020; $66,000 in 2021

  • $48,750 for the head of household in 2020; $49,500 in 2021

  • $32,500 for any other filing status for 2020; $33,000 in 2021

What is the saver's credit worth?

Savings credits are worth up to $1,000 ($2,000 for married filing jointly). Remember that a credit is not the same as a tax deduction; it is better: while a tax deduction only reduces the amount of your taxable income, a tax credit reduces the amount of your taxable income actual tax bill, dollar for dollar.

The saver's credit value is calculated based on their contributions to a traditional or Roth IRA, 401(k), SIMPLE IRA, SARSEP, 403(b), or (b) plan. New in 2018: contributions to ABLE accounts, tax-exempt savings accounts for people with disabilities and their families are also eligible. You may be entitled to 10%, 20%, or 50% of the maximum contribution amount, depending on the deposit status and adjusted gross income.

To benefit from the saver's credit, the contribution must be in new currency; In other words, transfers from an existing account, such as a 401 (k) transfer to an IRA, do not count.

Saver's credit rates for 2021


Married filing jointly

50% of contribution

20% of contribution

10% of contribution

AGI of $39,500 or below

$39,501 - $43,000

$43,001 - $66,000

Head of household

50% of contribution

20% of contribution

10% of contribution

AGI of $29,625 or below

$29,626 - $32,250

$32,251 - $49,500

Other filers

50% of contribution

20% of contribution

10% of contribution

AGI of $19,750 or below

$19,751 - $21,500

$21,501 - $33,000


Calculating the value of the saver's credit

Unlike many IRS rules, the calculations here are pretty straightforward: the credit is worth 10%, 20%, or 50% of a maximum contribution of $2,000 (or a total of $4,000 if you're married filing jointly).

Suppose you earn $15,000 as a single contributor, and you contribute $1,000 to a qualifying account. The value of your saver's credit would be $500. If you could contribute $5,000 to an eligible account, your credit would be $1,000 due to the limit.

If your contribution were made to a traditional IRA, 401 (k), or other accounts that offer a tax deduction for contributions, your taxable income would also be reduced by the amount of your contribution.



Carmen Garcia
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