Can the Saver's Credit save you money on your taxes?

For some people, the idea of saving for retirement is a fantasy that slowly turns into a full-blown nightmare.
Written by Tax Editors, Contributor

For many people, two of the most frightening words in the English language are "death" and "taxes."

Another word that generates strong emotion is "retirement." Unlike death and taxes, this word usually brings a smile to people's faces. That is, until it is combined with the word "savings." 

For some people, the idea of saving for retirement is a fantasy that slowly turns into a full-blown nightmare as they age. The reason is that, for many low- and moderate-income individuals and families, there are not enough dollars in a paycheck to be able to put some aside for retirement.

What is the Saver's Credit?

The Saver's Credit is an incentive to get low- and moderate-income taxpayers to start saving more for retirement. It was first enacted by Congress in 2001 as part of President Bush's tax-cut plan, providing a matching refundable credit that would be available to eligible taxpayers who made qualifying contributions to retirement plans. The refundable portion of the credit expired in 2006. The Saver's Credit is now a nonrefundable credit that can increase the size of a refund or reduce the amount of tax owed.

The credit works in conjunction with other retirement saving credits and deductions. It applies to eligible taxpayers who make contributions to employer-sponsored retirement plans, such as 401(k)s, a simplified employee pension (SEP), and both traditional and Roth IRAs, among others. The credit rate ranges from 10% to 50% of eligible contributions up to $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly).


To qualify for the credit, you must be at least 18 years old, not be a full-time student, and not be claimed as a dependent on someone else's tax return. You must also meet the following income retirements:

2021 Saver's Credit

Credit RateMarried Filing JointlyHead of HouseholdAll Other Filers*
50% of your contributionAGI not more than $41,000AGI not more than $30,750AGI not more than $20,500
20% of your contribution$41,101 - $44,000$30,751 - $33,000$20,502 - $22,000
10% of your contribution$44,001 - $68,000$33,001 - $51,000$22,001 - $34,000
0% of your contributionmore than $68,000more than $51,000more than $34,000

*Single, married filing separately, or qualifying widow(er); Credit: The IRS

How does the credit work?

The credit is limited to a percentage of your retirement contributions, and it offsets your overall tax bill.

For example, if you file a joint return with your spouse with an adjusted gross income of $35,500, and you each contribute $1,000 to eligible retirement plans, you are allowed to take a credit of $1,000, or 50%, toward your tax bill.

The credit is used to reduce your tax liability, even after your taxable income has already been reduced by certain retirement contributions.

To take advantage of the credit, you must complete IRS Form 8880 and submit it along with your 1040, 1040A, or 1040NR. Most tax preparation software will have this form included and will tell you whether you are eligible for the credit.

[This article originally appeared on The Simple Dollar in December, 2017. It was updated in December, 2021.]

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