Saver’s Credit: What It Is and How It Works

The saver's credit helps eligible taxpayers offset the cost of saving for retirement.

Arielle O'SheaNovember 22, 2020

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Uncle Sam wants you to save for retirement — so much so that he offers a tax credit for doing so.

What is the saver’s credit?

The retirement savings contribution credit — the "saver’s credit" for short — is a tax credit worth up to $1,000 ($2,000 if married filing jointly) for mid- and low-income taxpayers who contribute to a retirement account.

Who can claim the saver’s credit

You’re eligible for the saver’s credit if you are 18 or older, not a full-time student and not claimed as a dependent on another person’s tax return.

But that doesn’t necessarily mean you get it: You must also make a retirement plan or IRA account contribution, and fall under maximum adjusted gross income caps the IRS sets each year.

If your adjusted gross income is above any of these thresholds, you aren't eligible for the saver’s credit:

  • $65,000 as a married joint filer in 2020; $66,000 in 2021

  • $48,750 as a head of household filer in 2020; $49,500 in 2021

  • $32,500 as any other filing status in 2020; $33,000 in 2021

» Not eligible? An IRA has tax perks of its own. Learn more about these accounts.

What the saver’s credit is worth

The saver's credit is worth up to $1,000 ($2,000 if married filing jointly). Keep in mind that a credit is not the same as a tax deduction — it’s better: While a tax deduction just reduces the amount of your income that is subject to taxes, a tax credit reduces your actual tax bill dollar-for-dollar. (Read a detailed rundown of tax credits versus tax deductions.)

The saver’s credit is worth up to $1,000, or $2,000 for those married filing jointly.

The value of the saver’s credit is calculated based on your contributions to a traditional or Roth IRA, 401(k), SIMPLE IRA, SARSEP, 403(b) or 457(b) plan. (New in 2018: Contributions to ABLE accounts — tax-advantage savings accounts for people with disabilities and their families — are also eligible.) You may be eligible for 50%, 20% or 10% of the maximum contribution amount, depending on your filing status and adjusted gross income.

To qualify for the saver’s credit, the contribution must be new money; in other words, rollovers from an existing account — like a 401(k) rollover into an IRA — don't count.

Saver’s credit rates for 2020

Married filing jointly

50% of contribution

20% of contribution

10% of contribution

AGI of $39,000 or below

$39,001 - $42,500

$42,501 - $65,000

Head of household

50% of contribution

20% of contribution

10% of contribution

AGI of $29,250 or below

$29,250 - $31,875

$31,876 - $48,750

Other filers

50% of contribution

20% of contribution

10% of contribution

AGI of $19,500 or below

$19,501 - $21,250

$21,251 - $32,500

Calculating the value of the saver's credit

Unlike many IRS rules, the math here is fairly simple: The credit is worth 50%, 20% or 10% of a maximum contribution of $2,000 (or a total of $4,000 if you're married filing jointly).

Let’s say you earn $19,000 as a single filer, and you contribute $1,000 to an eligible account. The value of your saver’s credit would be $500. If you managed to contribute $5,000 to an eligible account, your credit would be worth $1,000, due to the cap.

If your contribution was made to a traditional IRA, 401(k) or other account that offers a tax deduction for contributions, your taxable income would also be reduced by the amount of your contribution.

» Learn more tax-advantaged retirement accounts: Traditional IRA vs. Roth IRA

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