The Saver’s Credit, formally known as the Retirement Savings Contribution Credit, is designed to encourage low- to middle-income taxpayers to save for retirement.
We’ll get to the qualification rules later, but the idea is that the credit can be worth as much as $1,000 per year, per person (married couples can get a credit of as much as $2,000). Depending on their income, the credit can be worth 10%, 20%, or 50% of contributions made to an eligible retirement account, up to a maximum of $2,000.
The credit can be taken for pretty much any tax-advantaged retirement account you can think of. You can use the Saver’s Credit if you contribute to an employer’s 401(k) plan at work, for example. Or if you open a traditional or Roth IRA and make a contribution, you can use that to qualify for the Saver’s Credit as well.
Who qualifies for the Saver’s Credit?
As mentioned, the Saver’s Credit is designed to give lower-income workers a tax break for retirement saving, so the general idea is that the lower the taxpayer’s adjusted gross income (AGI), the more generous the credit becomes. For the 2021 tax year, here are the AGI limits and the percentage of qualified retirement contributions that can be used to calculate the Saver’s Credit. And don’t worry if this looks confusing at first — we’ll go over an example in the next section.
| Credit — % of Contributions | Married Filing Jointly | Head of Household | All Other Filers |
|---|---|---|---|
| 50% of contribution | $39,500 or less | $29,625 or less | $19,750 or less |
| 20% of contribution | $39,501-$43,000 | $29,626-$32,250 | $19,751-$21,500 |
| 10% of contribution | $43,001-$66,000 | $32,251-$49,500 | $21,501-$33,000 |
| No credit | Over $66,000 | Over $49,500 | Over $33,000 |
And if you’re planning to take the credit on your 2020 tax return (the return you’ll file in 2021), here are the income thresholds for that year. Remember, IRA contributions for 2020 can be made until the April 15, 2021, tax deadline.
| Credit — % of Contributions | Married Filing Jointly | Head of Household | All Other Filers |
|---|---|---|---|
| 50% of contribution | $39,000 or less | $29,250 or less | $19,500 or less |
| 20% of contribution | $39,001-$42,500 | $29,251-$31,875 | $19,501-$21,250 |
| 10% of contribution | $42,501-$65,000 | $31,876-$48,750 | $21,251-$32,500 |
| No credit | Over $65,000 | Over $48,750 | Over $32,500 |
The maximum percentage available is 50% of qualified retirement contributions. Since the credit can be based on as much as $2,000 in contributions each year, this makes the maximum credit $1,000 per person, per year.
An example of how the Saver’s Credit works
Here’s an example of how this works. Let’s say that you and your spouse file a joint tax return, and your combined AGI for the 2021 tax year is $60,000. This puts you in the 10% Saver’s Credit range. If you each contribute $2,000 to retirement accounts for the year, your credit will be 10% of $4,000, or $400.
Free money to save for retirement
It’s tough to overstate how great a tax break this is. The Saver’s Credit is literally free money to save for retirement. And it’s important to mention that this is in addition to the other tax advantages of retirement savings. For example, if you contribute to a traditional IRA, you can still deduct your contributions from your taxable income and take advantage of the Saver’s Credit. If you qualify, this is a no-brainer for Americans who wants to retire with financial security.
