What Is the Saver's Credit and How Does it Work?
The saver's credit is a federal tax credit that you may qualify for if you contribute to tax-advantage retirement or ABLE accounts.
Photo by Maitree Rimthong on Pexels
The saver's credit can give you an extra incentive to save for the future by lowering your taxes if you contribute to your retirement account. And although you have to make most tax moves before the end of the year, this one is an exception. You might be able to qualify if you make a last-minute contribution to an IRA before filing your tax return.
What Is the Saver's Credit?
The saver's credit, or retirement savings contributions credit, is a federal tax credit that you may be able to claim if you make contributions to an eligible tax-advantaged retirement plan or ABLE account.
The saver's credit is worth up to $1,000, or $2,000 if you're married and file jointly. The amount you receive depends on your contributions, tax filing status and adjusted gross income (AGI).
Unlike tax deductions, a tax credit can save you money on a dollar-for-dollar basis. For example, a $1,000 tax deduction lowers your taxable income by $1,000 and might save you $220 if you're in the 22% tax bracket. But a $1,000 tax credit can save you the entire $1,000.
However, the saver's credit is nonrefundable, which means it can only lower your tax bill — it won't increase your tax refund if you don't owe anything.
How To Qualify for The Saver's Credit
You can claim the saver's credit when you file your tax return if you meet the qualification requirements and make eligible contributions.
Basic Requirements for the Saver's Credit
There are several basic requirements that you have to meet to qualify for the saver's credit.
- You have to be at least 18 years old
- No one can claim you as a dependent on their tax return
- You can't have been a full-time student during five or more months
Additionally, you have to contribute to at least one of the following types of tax-advantaged accounts:
- ABLE account
- Roth or traditional IRA
- Employer-sponsored retirement plans, such as a 401(k) or 403(b)
If you file jointly with your spouse, only one of you needs to be eligible and contribute to claim the credit. However, you might receive a larger tax credit if you're both eligible and contribute.
Income Requirements for the Saver's Credit
In addition to the basic eligibility and contribution requirements, your eligibility and the credit's value depend on your AGI and tax filing status.
For the 2023 tax year, you can claim the saver's credit if your AGI is at or below:
- $73,000 (married filing jointly)
- $54,750 (head of household)
- $36,500 (other statuses)
Those amounts increased to $76,500, $57,375, and $38,250, respectively, for the 2024 tax year.
Your credit will be worth 10%, 20% or 50% of your eligible contributions depending on your AGI. For example, if you contributed $2,000 for the 2023 tax year, you might receive a credit worth $200, $400 or $1,000.
The IRS's website has charts that show the various AGI cutoff points.
How To Claim the Saver's Credit
You claim the saver's credit using Form 8880, which asks about your contributions, filing status and AGI. If you're using tax preparation software, the software may automatically fill out the form and claim the credit for you if you qualify. You can review your tax return before filing to double-check.
If you qualify for the saver's credit, you also likely qualify to use free tax preparation software that's part of the IRS Free File program. Alternatively, you may be able to get free assistance preparing and filing your tax return from an IRS-certified volunteer who is part of the Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) program.
Don't Forget — Last-Minute Contributions Can Help You Save
You generally need to make tax-advantaged account contributions by December 31. But IRA contributions are an exception, and the deadline is the tax-filing date of the following year. For example, you can make 2023 year IRA contributions through April 15, 2024.
With this in mind, you can start preparing your tax return to find your AGI and see if you'll qualify for the saver's credit. If you do, and you haven't maxed out your IRA contributions for the year, you might want to make an additional contribution if it will qualify you for a larger tax credit.
Traditional IRA contributions also might lower your AGI. So, if you're on the cusp of qualifying, a contribution might help qualify you for the saver's credit and decrease your overall taxable income. Plus, you can invest the money in your IRA for your future self. It's a win-win-win.
Get your FICO® Score from FICO, for free. No credit card required.
Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.