Saver’s Credit

Details on a credit some taxpayers can claim when they contribute to an IRA or 401k.

Updated November 5, 2023

Many people with low to moderate income find it hard to save for retirement, so there’s a special tax credit designed to help this particular group. Its formal name is the retirement savings contribution credit, but most people just call it the saver’s credit. If you qualify, and you can scrape together the money for a retirement savings contribution, Uncle Sam will provide a credit that can be as much as half of the amount you contributed. If you’re eligible, you can claim this credit even if you received matching contributions from your employer!

Example: You contribute $1,000 to your company’s 401k plan and get a matching contribution of $500, so you have a total of $1,500 in your account. If you qualify for the highest level of this credit, you get a $500 reduction in your taxes, so it cost you only $500 to add $1,500 to your retirement savings.

On your own

Go Roth! Your Guide to the Roth IRA and Other Roth Accounts

Congress didn’t want to allow this credit for minors, full-time students or dependents. You’re disqualified if any of the following are true for the year you want to claim the credit:

  • You were less than 18 years of age at the end of the year.*
  • You were a full time student. For this purpose, you’re considered a full-time student if, during some part of five calendar months, you were enrolled for the number of hours or courses your school considers to be full-time.
  • Someone else claims an exemption for you on their tax return. (It appears that this rule is inoperable after 2017 due to elimination of the deduction for personal exemptions. The IRS has not yet confirmed this in guidance, however.)

In any of these situations you may be eligible to make retirement savings contributions, and it may be a good idea for you to do so, but you won’t qualify for the credit.

* If you were born on January 1, you’re considered 18 as of the day before your 18th birthday, on December 31 of the preceding year, for purposes of this rule.

Income limits

There are income limits for this credit, depending on your filing status. When you pass the first threshold, the credit falls from 50% of your contribution to 20%. At the next threshold it drops to 10%, and no credit at all is allowed with income above a third level. These are the numbers for 2024. Numbers for other years are available in our Reference Room.

Saver’s credit married filing jointly
50% up to46,000
20% up to50,000
10% up to76,500
2024 thresholds for retirement savings contribution credit.
Saver’s credit head of household
50% up to34,500
20% up to37,500
10% up to57,375
2024 thresholds for retirement savings contribution credit.
Saver’s credit other taxpayers
50% up to23,000
20% up to25,000
10% up to38,250
2024 thresholds for retirement savings contribution credit.

For example, if you’re married filing jointly with income of $60,000, your credit will be 10% of the amount contributed, up to the limit described below. But if your joint income is $40,000, the credit will be a whopping 50% of the amount contributed.

Income: For this purpose, we’re talking about your adjusted gross income, which is your income after taking certain deductions (such as a deduction for your IRA contribution), but before claiming itemized deductions or the standard deduction. If you excluded income from foreign sources, you’ll have to add that back when figuring income for this purpose.

Eligible contributions

What types of retirement contributions qualify? Plenty. You can put money into any of the following:

  • A traditional or Roth IRA
  • A 401k plan or 403b annuity
  • A governmental 457 plan
  • A SIMPLE IRA plan or salary reduction SEP
  • A 501(c)(18) plan

You can also count after-tax employee contributions to a qualified retirement plan or 403b annuity, but only if the contributions are voluntary. In all cases, your contribution has to be “new money.” Rollover contributions don’t count.

Maximum amount. The maximum contribution amount for this credit is $2,000 per person. For example, if you contribute $3,000 and qualify for the 10% credit, your credit will be $200 because only the first $2,000 of contributions count. This limit applies after the reduction for distributions described next.

Reduction for distributions

The idea behind the credit is to help you build retirement savings, so the credit doesn’t apply if you’re taking money out at the same time you’re putting it in. In fact, when you figure the credit you have to reduce your eligible contributions by the amount of distributions you received during a “testing period” consisting of the year for which you’re claiming the credit, the period after the end of that year until the due date (including extensions) of your tax return for that year, and the two years before that year. Certain types of distributions don’t count: distributions that are rolled over to another retirement plan, or corrective distributions, for example. But if you file jointly with a spouse who took retirement plan distributions, you may also have to reduce your contributions by those distributions when figuring the credit. Bottom line: check these rules carefully if you or your spouse took any distributions from retirement plans during the testing period.

It’s nonrefundable

This is a “nonrefundable” credit. That means you can’t use it to get a refund that’s bigger than the amount of tax you paid through withholding or estimated tax payments. In other words, if you’re already paying zero tax, you can’t use this credit to pay less than zero. However, you can use the credit to increase the amount of your refund, if it isn’t as big as the amount that was withheld.

Example: Your total income tax withholding for the year was $800, and before you figure this credit you’re expecting a refund of $500. That means you can’t claim more than $300 credit (boosting your refund to $800, the amount of your withholding) even if you would otherwise qualify for a larger credit.

Forms and publications

To claim this credit you have to file Form 8880 (click here for PDF file). The instructions come attached to the form. For further explanation, see chapter 3 of IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

Scroll to Top