Starting a retirement account or plan is one of the best retirement tips, but it’s not always easy. Budgeting for retirement account contributions can be hard — especially for people in lower tax brackets.
The saver’s credit is designed to reward you for contributing to your retirement account and planning for the future. If you meet certain criteria, you may be able to claim this credit.
What is the retirement saver’s credit, and who’s eligible? Find out if you qualify and learn how you can apply for the saver’s credit.
What is the saver’s credit?
The saver’s credit is a tax credit offered by the IRS for people who contribute to a retirement account. The IRS encourages individuals to plan for retirement through the saver’s credit. Contributing to retirement can be difficult financially, but the retirement saver’s credit offers some relief that makes it more affordable.
If you qualify for the saver’s credit, the credit you receive will vary based on your adjusted gross income (AGI), filing status, and contributions. However, you may not qualify if your income is beyond a certain threshold.
While many people are eligible for the saver’s credit, you have to meet certain criteria and make eligible contributions to a qualified retirement plan or account.
How does the saver’s credit work?
The saver’s credit works like other tax credits. It is a direct reduction to your tax bill. Unlike tax deductions, the credit amount is applied to the taxes you owe rather than your taxable income.
You can file Form 8880, Credit for Qualified Retirement Savings Contributions, to apply for the saver’s credit.
Your credit is based on the amount you contribute. You’ll receive a percentage of your total contributions for a particular tax year if you qualify. Keep in mind that this percentage is based on your AGI and filing status, and only $2,000 in contributions (or $4,000 if married filing jointly) are eligible.
The saver’s credit is a non-refundable tax credit, which means you don’t get the remainder of the credit back as a refund. If you owe $500 in taxes and receive a $1,000 saver’s credit, you won’t owe any taxes — but you won’t receive the additional $500 as a refund.
If you’re setting up an individual IRA, you have until April 15 to set up a new IRA or add money to an existing IRA for the previous tax year. Individuals with a workplace retirement plan have until December 31 to make qualifying contributions for that tax year.
While many types of retirement accounts and plans are eligible for the saver’s credit, rollover contributions aren’t eligible. If you recently rolled an eligible retirement plan over to another plan, those contributions don’t count toward the credit.
How much is the saver’s credit?
Because the saver’s tax credit is based on your retirement account contributions, filing status, and AGI, the amount you receive can vary. If you’re eligible for the saver’s credit, you may receive between 10% and 50% of your contribution in the form of a tax credit.
To receive 50% of your contribution as a tax credit for 2024, your AGI must be:
- $46,000 or lower if married filing jointly
- $34,500 or lower if filing as head of household
- $23,000 or lower for all other filers
To receive 20% of your contribution as a tax credit for 2024, your AGI must be:
- $46,001 – $50,000 if married filing jointly
- $34,501 – $37,500 if filing as head of household
- $23,001 – $25,000 for all other filers
To receive 10% of your contribution as a tax credit for 2024, your AGI must be:
- $50,001 – $76,500 if married filing jointly
- $37,501 – $57,375 if filing as head of household
- $25,001 – $38,250 for all other filers
If your AGI is past the 10% threshold, you’re not eligible for the saver’s credit. You can use Form 8880 to determine your eligibility and calculate your saver’s tax credit.
Since you can receive a maximum of 50% of your tax contributions up to $2,000 ($4,000 if married filing jointly), the maximum saver’s tax credit is $1,000 ($2,000 if married filing jointly).
Who is eligible for the saver’s credit?
To qualify for the saver’s credit, you need to make eligible contributions and meet certain AGI thresholds based on your filing status. If your AGI exceeds a certain amount, you aren’t eligible for the saver’s credit.
Eligible contributions must be made to a qualified IRA or employer-sponsored retirement plan. Contributions made to your Achieving a Better Life Experience (ABLE) account can also be eligible if you’re the designated beneficiary.
In addition to making eligible contributions, individuals must:
- Be at least 18 years old
- Not be a student
- Not be claimed as a dependent on another person’s tax return
If you were enrolled as a full-time student or took a full-time training course for at least 5 calendar months, you’re considered a student. This includes technical, trade, and mechanical schools, but does not include on-the-job training or online courses.
There are also income limits to qualify for the saver’s credit. The AGI limits for 2024 are:
- $76,500 for married couples filing jointly
- $57,375 for heads of household
- $38,250 for married individuals filing separately and single filers
Certain types of contributions don’t qualify for the saver’s credit, and recent distributions can affect the amount you receive. Consult a tax professional if you have questions about your contributions and whether you qualify for the saver’s credit.
What types of retirement accounts are eligible?
Contributions you make to an IRA or Roth IRA are eligible for the saver’s credit. There are also various types of employer-sponsored retirement plans and pension plans that are eligible, including:
- 401(k): If you contribute to a 401(k) through your employer, you can use those contributions to claim the saver’s credit. Rollover contributions from a previous 401(k) don’t count towards the credit.
- 403(b): You may contribute to a 403(b) if you’re employed by a public school. Contributions to a qualified 403(b) are eligible for the saver’s credit.
- Governmental 457(b): If you work for a government organization, you may have a governmental 457(b) that you can use to claim the saver’s credit.
- SARSEP plan: While new SARSEP plans are no longer available, contributions to your existing plan can qualify you for the saver’s credit.
- SIMPLE plan: With a SIMPLE plan, you and your employer can contribute to a traditional IRA. However, employer contributions don’t affect the tax credit you receive.
- 501(c)(18)(D) plan: If you have a 501(c)(18)(D) plan through a qualifying employer, you can use those contributions to claim the saver’s credit when you file your taxes.
- ABLE account: Beginning in 2018, contributions made to an ABLE account are eligible as long as you’re the designated beneficiary.
While various types of retirement accounts and plans are eligible for the saver’s credit, contributions must be made before the deadline for a given tax year. The AGI limit also applies, so you may not qualify even if you have an eligible retirement account.
How do you claim the retirement saver’s credit?
Claiming the retirement saver’s credit makes it easier to save for retirement, so you can plan for the future without sacrificing your present quality of life.
To claim the retirement saver’s credit, you need to complete Form 8880, Credit for Qualified Retirement Savings Contributions. Start with your name and social security number at the top of the form, then review the eligibility requirements to make sure you qualify.
Follow the instructions on the form to calculate your total contributions — not including rollover contributions — then subtract recent distributions from your total contributions. If you enter 0 on line 7, you aren’t eligible for the saver’s credit.
On line 8, enter your AGI from Form 1040. Refer to the chart to figure out which number to enter on line 9 based on your filing status and AGI. This is the percentage of your contributions you’re receiving as a tax credit. If you enter 0 on line 9, you’re not eligible.
For line 10, multiply line 7 (your contributions minus recent distributions) by line 9 (the percentage you qualify for). This is the saver’s credit you’re eligible for — but there’s one more step.
Line 11 is your limitation based on tax liability, which may limit the tax credit you can receive. Use the Credit Limit Worksheet on the instructions page to calculate your limitation based on tax liability, then enter the smaller of line 10 or line 11 on line 12 and line 4 of Schedule 3 (Form 1040).
Calculating and claiming your retirement saver’s credit doesn’t take long. If you need help completing Form 8880 or have questions about your eligibility, TurboTax is here to help.
No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.
