The Saver’s Credit, also referred to as the Retirement Savings Contributions Credit by the Internal Revenue Service (IRS), is available to millions of eligible taxpayers who are saving for retirement. But less than half (49%) of U.S. workers are aware of it, according to new survey findings from nonprofit Transamerica Center for Retirement Studies (TCRS).
“On top of the tax-deferred benefits of saving for retirement in a 401(k), 403(b) or IRA, the Saver’s Credit is an additional benefit that may reduce a person’s federal taxes. Many eligible retirement savers could be confusing these incentives, simply because the idea of a double tax benefit sounds too good to be true,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
The Saver’s Credit is a non-refundable tax credit that may be applied up to the first $2,000 of voluntary contributions an eligible taxpayer makes to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE (Achieving a Better Life Experience) account.
In this context, “non-refundable” means the credit cannot exceed a person’s federal income tax for the year. The maximum credit is $1,000 for single filers or individuals and $2,000 for married couples filing jointly. According to TCRS’ analysis of the most recently published IRS data, the average amount of the Saver’s Credit in 2020 was $186.
Who can claim the Saver’s Credit
The credit is available to individuals ages 18 years or older who have contributed to a 401(k), 403(b) or similar employer-sponsored retirement plan, a traditional or Roth IRA, or an ABLE account in the past year and meet the Adjusted Gross Income (AGI) requirements:
- Single tax filers: maximum AGI of $34,000 in 2022 and $36,500 in 2023
- Heads of households: maximum AGI of $51,000 in 2022 and $54,750 in 2023
- Married filing jointly: a maximum AGI of $68,000 in 2022 and $73,000 in 2023
Additionally, the tax filer cannot be a full-time student and cannot be claimed as a dependent on another person’s tax return. For more details about eligibility, refer to TCRS’ fact sheet.
Tips for claiming the Saver’s Credit
- Retirement plan participants should consider using the IRS’ online tool to help determine if they are eligible for the credit.
- Participants using an online tax preparation tool, including those offered through the IRS Free File program, should answer questions about the Saver’s Credit, also referred to by the IRS as the “Retirement Savings Contributions Credit,” and “Credit for Qualified Retirement Savings Contributions.”
- For participants who prepare their tax return manually, they can complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine their exact credit rate and amount. Then transfer the amount to line 4 on Schedule 3, used with Forms 1040, 1040-SR, and 1040-NR.
- Participants using a professional tax preparer should be sure to ask about the Saver’s Credit.
Saver’s Match replaces Saver’s Credit in 2027
Beginning in 2027, the recently enacted SECURE Act 2.0 of 2022 reimagines and replaces the Saver’s Credit with the Saver’s Match, a matching contribution from the government for retirement savers meeting income eligibility requirements. The Saver’s Match will be 50% of a worker’s retirement plan or IRA contributions up to $2,000, representing a maximum match amount of $1,000.
To learn more about the Saver’s Credit, additional information and resources, including fact sheets, infographics, and a newsletter article—in English and Spanish—as well as a podcast episode are posted and encouraged for public use at www.transamericainstitute.org/saverscredit. More information can also be found at www.irs.gov.
SEE ALSO:
• 8 Ways SECURE 2.0 Will Enhance Retirement