The Retirement Savings Contributions Credit

The Retirement Savings Contributions Credit is a federal income tax credit designed to encourage low- and modest-income individuals to save for retirement. Sometimes referred to as the "Saver's Credit," the credit equals 10% to 50% of your contributions for the year, up to certain limits.

How much of your contributions you can claim as a credit depends on your adjusted gross income (AGI) and your federal income tax filing status. Learn more about qualifying for and claiming the Saver's Credit on your federal income taxes.

Qualifying for the Saver's Credit

You can include contributions to just about any type of retirement plan when claiming the credit, including contributions to a:

• 401(k) plan
• Traditional or Roth IRA
• 403(b) or 457(b) plan
• SARSEP or SIMPLE plan
• Thrift Savings Plan
• 501(c)(18)(D) plan
• ABLE account for which you are the designated beneficiary

However, rollover contributions, which are funds that you move from one retirement plan to another, don't qualify.

Even if you made contributions to a retirement account, you need to meet other criteria to qualify for the credit. In addition to having contributed money to a qualifying plan, you must:

• Meet income limits
• Be aged 18 or older
• Not be claimed as any other taxpayer's dependent
• Not be a student

A student is anyone who was enrolled as a full-time student at a school or who took a full-time, on-farm training course given by a school or government agency for at least five calendar months of the tax year.

Income Limits for the Saver's Credit

The Saver's Credit is limited by your AGI, which is based on your filing status. Your AGI is your gross income minus adjustments to income, such as educator expenses, student loan interest, and alimony payments.

Depending on your income, you can claim between 0% and 50% of your contributions as a tax credit. For the 2021 tax year (the return you will file in 2022), you become ineligible for the credit (0%) if your AGI is more than:

• $33,000 if your filing status is single, married filing separately, or qualifying widow(er)
• $49,500 if your filing status is head-of-household
• $66,000 if your filing status is married filing jointly

For the 2022 tax year (the return you will file in 2023), you become ineligible for the credit if your AGI is more than:

• $34,000 if your filing status is single, married filing separately, or qualifying widow(er)
• $51,000 if your filing status is head-of-household
• $68,000 if your filing status is married filing jointly

Calculating Your Retirement Savings Contributions Credit

The amount of your tax credit is a percentage of your retirement contributions.

The maximum contribution limit that the credit can be applied toward is $2,000 (maximum $1,000 credit) for taxpayers who file as single, head-of-household, qualifying widow(er), or married filing separately. It's $4,000 (maximum $2,000 credit) for married taxpayers who file a joint return.

As an example, suppose you qualify as head-of-household, and you contribute $500 per month, or $6,000 per year, to a qualifying retirement plan. Your AGI was $45,000 in 2021. That means you're eligible for a credit of 10% of the $2,000 contribution limit. That works out to a credit of $200.

You could claim a credit of $400, or 20% of the contribution limit, if your income were $30,000. You would be entitled to a credit of 50% of the $2,000 limit—or $1,000—if your AGI were $29,000.

These income limits are adjusted for inflation, so they increase for tax year 2022 (the return you will file in 2023).

Provisions for ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts that can be established on behalf of disabled individuals and their families. They were first introduced in 2014. Beneficiaries must have become disabled prior to age 26. These accounts became qualified for the Saver's Credit beginning in 2018.

You must be the designated beneficiary of the account to claim the Saver's Credit. The same income limits and other requirements apply based on filing status. Rollovers from other accounts don't qualify as contributions in this type of account either.

How to Claim the Saver's Credit

To claim the Saver's Credit on your federal income tax return, first complete IRS Form 8880. Transfer the amount that appears on line 12 to Schedule 3, line 4. Then transfer the total of all nonrefundable credits you qualify for on line 7 of Schedule 3 to line 20 of your Form 1040. Attach Form 8880 and Schedule 3 to your tax return.

If you use tax preparation software, it will prompt you to answer questions about your retirement savings and can complete these forms automatically for you. They will then be printed or e-filed with your full return, depending on the option you select.