Saver's Tax Credit
The saver's credit can effectively boost an individual's retirement savings power
2020 Saver's Credit Income Limits
Head of Household
50% of contribution
AGI of $19,500 or less
AGI of $29,250 or less
AGI of $39,000 or less
20% of contribution
$19,501 - $21,250
$29,251 - $31,875
$39,001 - $42,500
10% of contribution
$21,251 - $32,500
$31,876 - $48,750
$42,501 - $65,000
0% of contribution
more than $32,500
more than $48,750
more than $65,000
As the chart illustrates, the lower an individual's AGI is, the higher the saver's credit becomes.
Besides falling into one of these income tiers, you'll also need to meet the following requirements to qualify for the credit:
You are age 18 or older
You're not a full-time student
No one claims you as a dependent on their return.
(You also need to make contributions to either a traditional IRA, Roth IRA, SIMPLE IRA, SARSEP, 401(k), 403(b), 501( c)(18), 457(b) plan or ABLE account. Rollover contributions do not qualify
The saver's 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.
Remember that tax credits are not the same as deductions; while a deduction lowers your tax bill by reducing your taxable income, a credit directly reduces your tax bill. Another thing to note is that the Saver’s credit is not refundable. So if the credit pushes your tax liability (how much you owe in taxes for the year) below zero, you will not get a refund for the difference. You will simply have no tax liability.
The Saver’s Credit is a great way for low- and moderate-income individuals or couples to save for retirement while also saving money on their taxes.
Claiming a saver's credit when contributing to a retirement plan can reduce an individual's income tax burden in two ways.
First, the contribution to the plan itself qualifies as a tax deduction.
Second, the saver's credit reduces the actual taxes owed, dollar for dollar.
This credit provides a tax deduction for some of your IRA or ABLE account contributions, as long your income falls below a certain threshold.
The saver's tax credit is a non-refundable tax credit available to eligible taxpayers who make salary-deferral contributions to employer-sponsored 401k, 403b, SIMPLE, SEP, governmental 457 plans, or ABLE accounts. It is likewise available to those who contribute to traditional and/or Roth IRAs.
Depending on income levels (see chart), the credit is worth either 10%, 20%, or 50% of a person's eligible contribution, but there are caps in place. As your income increases, the credit for which you qualify is smaller, providing a credit of either 20% or 10% of your contributions.
The credit is worth a maximum of $1,000 ($2,000 if you file jointly).