Saver’s Tax Credit: A Retirement Savings Incentive
Many people struggle to set aside the money they need to build up their retirement nest eggs, month by month. Fortunately, a nonrefundable tax credit, known as the retirement savings contributions credit, can make it substantially easier to save.
Usually referred to as the Saver’s Credit, it provides individuals and families with modest incomes a tax break above and beyond any deductions that they may receive from contributions to their individual retirement accounts (IRAs) or employer-sponsored plans.
By reducing the person’s income tax bill for the year, the credit offsets the cost of funding a retirement account, ultimately bolstering their long-term savings over time.
Key Takeaways
- A tax credit reduces the amount of taxes owed dollar for dollar. That’s better than a tax deduction, which reduces the taxpayer’s total taxable income.
- The saver’s tax credit is available to eligible taxpayers who contribute to an employer-sponsored retirement plan, ABLE plan, or a traditional and/or Roth IRA.
- The amount of the credit is determined by a number of factors, including the person’s retirement plan contributions, tax filing status, and adjusted gross income (AGI).
- This credit is not available to people under age 18, full-time students during any part of five calendar months (not necessarily consecutive) during the tax filing year, or anyone claimed as a dependent by another taxpayer.
- You can use Form 8880 to calculate and claim the saver’s tax credit.
What Is the Saver’s Tax Credit?
The saver’s tax credit is available to eligible taxpayers who contribute to employer-sponsored 401(k), 403(b), SIMPLE, SEP, thrift savings plans (TSPs), or governmental 457 plans. It is also available to those who contribute to traditional or Roth IRAs.
Those who make contributions to these types of accounts on behalf of other people with disabilities and their families (known as ABLE accounts) also are eligible for the saver’s tax credit.
AGI Determines Amount of Credit
Your adjusted gross income (AGI) determines your credit amount, which can be either 50%, 20%, or 10% of a maximum contribution amount. The maximum contribution amount that qualifies for the credit is $2,000, or $4,000 for married couples filing jointly.
The credit rate that you can apply depends on your AGI and filing status. If your income rises above the maximum AGI limit, you can’t claim the credit.
For the 2024 tax year, the maximum AGI limits were $76,500 for married couples filing jointly; $57,375 for heads of household; and $38,250 for singles and married individuals filing separately. Income beyond these maximums disqualified you from claiming the credit.
For the 2025 tax year, the maximum AGI limits are $79,000 for married couples filing jointly; $59,250 for heads of household; and $39,500 for singles and married individuals filing separately. Income beyond these maximums disqualifies you from claiming the credit.
Below are the credit rates and AGI thresholds that apply to the different filing statuses for tax years 2024 and 2025.
| Saver’s Tax Credit Rates and AGI Ranges for Tax Year 2024 | |||
|---|---|---|---|
| Credit | Married Filing Jointly | Head of Household | Other Filers |
| 50% of your contribution | Not more than $46,000 | Not more than $34,500 | Not more than $23,000 |
| 20% of your contribution | $46,001–$50,000 | $34,501–$37,500 | $23,001–$25,000 |
| 10% of your contribution | $50,001–$76,500 | $37,501–$57,375 | $25,001–$38,250 |
| 0% of your contribution | Over $76,500 | Over $57,375 | Over $38,250 |
| Saver’s Tax Credit Rates and AGI Ranges for Tax Year 2025 | |||
|---|---|---|---|
| Credit | Married Filing Jointly | Head of Household | Other Filers |
| 50% of your contribution | Not more than $47,500 | Not more than $35,625 | Not more than $23,750 |
| 20% of your contribution | $47,501–$51,000 | $35,626–$38,250 | $23,751–$25,500 |
| 10% of your contribution | $51,001–$79,000 | $38,251–$59,250 | $25,501–$39,500 |
| 0% of your contribution | Over $79,000 | Over $59,250 | Over $39,500 |
Who Is Eligible?
To be eligible for the saver’s tax credit, an individual must be at least 18 years old by the end of the applicable tax year and cannot be claimed as a dependent on another’s tax return. Also, they may not enroll as a full-time student during any part of five calendar months (not necessarily consecutive) during the tax filing year.
The Effect of the Saver’s Tax Credit
Claiming the saver’s tax credit when contributing to a retirement plan can reduce an individual’s income tax burden in two ways. First, the contribution to the retirement plan qualifies as a tax deduction. As a bonus, the saver’s tax credit reduces the actual taxes owed, dollar for dollar.
Consider the following examples:
Barbara is married and works in a clothing store as a clerk. She earned $38,000 in 2024. In addition, she contributed $1,000 to her IRA. Her husband, who is unemployed, had zero earnings. After deducting her IRA contribution, the AGI shown on her joint return is $37,000. In this case, Jill is entitled to claim a 50% credit of $500 ($1,000 × 0.50) for that IRA contribution.
For tax year 2025, if Barbara earns $42,000 (her husband remains unemployed) and contributes $2,000 to her IRA, her AGI on her joint return would be $40,000. That means she can claim a 50% credit of $1,000 ($2,000 × 0.50).
How to Claim the Saver’s Tax Credit
Taxpayers who contribute to qualified employer-sponsored retirement plans, IRAs, or ABLE plans are required to complete IRS Form 8880 to claim the saver’s tax credit.
Those whose income does not exceed the limits for their tax filing status can use this form to report their and their spouse’s total contributions to claim the credit.
You also enter your adjusted gross income to determine the amount of your credit. Once calculated, you must enter the credit amount on Form 1040 and then file Form 8880 with your return.
When Are Retirement Savings Not Eligible?
Any money contributed to a retirement account that exceeds the allowable limit must be divested from the account within a specific time frame. The returned portion of the contribution is not eligible for the saver’s tax credit.
Similarly, if an individual changes jobs and consequently rolls money over from one retirement account into another—say, from an employer-sponsored 401(k) to a traditional IRA—then that contribution is likewise ineligible for the saver’s tax credit.
How Can I Get the Saver’s Tax Credit?
To be eligible for the saver’s tax credit, you must be at least 18 years old, not a full-time student during any part of five calendar months (not necessarily consecutive) during the tax filing year, and not claimed as a dependent on another’s tax return. Your adjusted gross income (AGI) must not exceed the saver’s tax credit limit for your filing status, and you must have made contributions to a qualified retirement or ABLE plan for the tax filing year. To claim the credit, file Form 8880 with your tax return.
Who Qualifies for the Saver’s Tax Credit?
The saver’s tax credit is designed to help people with modest incomes save for retirement. It does this by deducting from their income tax bill some portion of the amount they contribute to retirement accounts. To qualify, your AGI must fall below a certain maximum amount.
For the 2024 tax year, the maximum income limits were $76,500 for married couples filing jointly; $57,375 for heads of household; and $38,250 for singles and married individuals filing separately.
For the 2025 tax year, the maximum income limits are $79,000 for married couples filing jointly; $59,250 for heads of household; and $39,500 for singles and married individuals filing separately.
How Much Is the Saver’s Tax Credit?
The saver’s tax credit is 10%, 20%, or 50% of a contribution to a qualified retirement plan (QRP). The maximum contribution amount that qualifies is $2,000 ($4,000 for married couples filing jointly). The credit cannot exceed $2,000 for married couples filing jointly or $1,000 for single filers.
The Bottom Line
The saver’s tax credit can effectively boost an individual’s retirement savings power. Those who qualify for this credit and don’t capitalize on this opportunity are squandering a simple way to add significant value to their nest eggs. So be sure to check it out when you prepare your tax return.
Correction—Feb. 12, 2025: This article has been corrected to state that an individual may not be a full-time student during any part of five calendar months (not necessarily consecutive) during the tax filing year to be eligible for the saver’s tax credit.