Did you know that if you are saving for retirement you could qualify for a Saver’s Credit? Did you know it could reduce or even eliminate your tax bill?
Unfortunately, many eligible taxpayers don’t take advantage of these breaks because they don’t know about them.
Saver’s Credits (formerly known as Retirement Savings Contribution Credits), are special tax breaks for individuals in low to moderate income brackets who are saving for retirement. This means, you may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. Or, if you are a designated beneficiary to a retirement plan, you could be eligible for a credit for contributions to your Achieving a Better Life Experience (ABLE) account.
Who Is Eligible For The Saver’s Credit?
You’re eligible for the credit if you’re:
- Age 18 or older;
- Not a full-time student; and
- Not claimed as a dependent on another person’s return.
In addition to meeting the above criteria, you’ll also need to be making contributions to an IRA or other retirement plan, and fall under maximum adjusted gross income caps the IRS sets each year.
You are NOT eligible if your income is higher than these thresholds in 2022:
- $68,000 as a married joint filer
- $51,000 as a head of household filer
- $34,000 as single, married filing separately, or qualifying widow(er)
To qualify for the saver’s credit, your retirement account contributions must be “new money”. Rollover from an existing account (such as a 401(k) rollover into an IRA) will not count. Rollover contributions (money that you moved from another ABLE account or from a Qualified Tuition Plan account) do not qualify for the credit either. Eligible contributions could also be reduced by any recent distributions you may have received from your ABLE account.
Which Retirement Accounts Qualify For The Saver’s Credit?
The following account types qualify for the Saver’s Credit:
What Are The Saver’s Credit Rates?
Depending on your adjusted gross income, the amount of the credit is 50%, 20% or 10% of your retirement plan or IRA or ABLE account contributions.
The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 (or $2,000 if married filing jointly).
You can use the following chart to help calculate your credit:
2022 Saver’s Credit Rates:
Credit Rate | Married and Files a Joint Return | Files as Head of Household | Other Filers |
50% | Up to $41,000 | Up to $30,750 | Up to $20,501 |
20% | $41,001- $44,000 | $30,751 – $33,000 | $20,501 – $22,000 |
10% | $44,001 – $68,000 | $33,001 – $51,000 | $22,001 – $34,000 |
0% | More than $68,000 | More than $51,000 | More than $34,000 |
(data source; IRS.gov)
How Do You Claim The Saver’s Credit?
To claim the credit, you’ll need to use IRS Form 8880, “Credit for Qualified Retirement Savings Contributions.”
It is important to note that the Saver’s Credit is a ‘non-refundable’ credit. Therefore, this means that the credit can reduce the tax you owe to zero, but it does not provide you with a tax refund.
Want to learn more about opening an IRA? Read our article about IRAs here.
Kate writes about retirement benefits for retirementinsurance.org. She has a Masters Degree in Social Work (MSW). She has over a decade of experience in assisting elderly and disabled populations navigate governmental and private programs to obtain the monetary assistance they need to lead better lives. As she watched her parents begin their own retirement journeys and navigate similar systems to obtain Social Security, Medicare and other retirement benefits, she gleaned a further personal knowledge about the topic and is eager to share what she has learned with others.