The Saver's Credit

The Saver's Credit (formerly called the Retirement Savings Contributions Credit) provides a tax incentive for low and moderate-income earners to save for retirement. A tax credit is available, which can reduce your taxes or add to your refund.

Depending of your adjusted gross income and tax filing status, you can claim the credit for 50%, 20%, or 10% of the first $2,000 you contribute during the year to a retirement account. Therefore, the maximum credit amounts that can be claimed are $1,000, $400 or $200 (the maximum credit is double these amounts if you're married filing jointly). For example, if you contribute $2,000 to your 401(k) and your spouse contributes $2,000 to her 401(k), and you file jointly, the maximum credit would be $2,000 (50% x $4,000).

Keep in mind, the Saver's Credit is a non-refundable credit. This means, it can reduce the tax you owe to zero, but it does not provide you with a tax refund for the amount of the credit that exceeds the amount of tax you owe.

You can claim the Saver's Credit for contributions to a 401(k), 403(b), 457 plan, a Simple IRA or SEP IRA. Note that you cannot claim your employer's contributions to these accounts. You can also claim the Saver's Credit for contributions to your traditional IRA or Roth IRA.

The credit amount is based on the taxpayer's:

  • Filing status
  • Adjusted gross income
  • Tax liability
  • Amount contributed to qualifying retirement programs.

Maximum 2016 Adjusted Gross Income for Saver's Credit Eligibility

Credit Rate Married Filing Jointly Head of Household Single, Married Filing Separately, or Qualifying Widow or Widower
50% up to $37,000 up to $27,750 up to $18,500
20% $37,001 - $40,000 $27,751 - $30,000 $18,501 - $20,000
10% $40,001 - $61,500 $30,001 - $46,125 $20,001 - $30,750
0% over $61,500 over $46,125 over $30,750

Special rules:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
  • Your retirement contribution must have been made during the tax year for which you are filing your return.
  • You must meet the income requirements.

How to Claim the Saver's Credit

Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

You can only claim the creidit if you use form 1040, 1040A or 1040NR to file your federal tax return. Although IRS instructions include information about the Saver's Credit in the instructions for 1040EZ, those instructions direct you to a different form. You can't use Form 1040EZ to claim the Saver's Credit.

Historical Note

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation.

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