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Retirement Contributions Credit or Saver's Credit

Retirement Savings Contributions Credit or Saver's Credit

If you made Retirement Contributions in Tax Year 2021 and you prepare and e-File your 2021 Federal and State Tax Returns via eFile.com, you can be assured that the correct Saver's Credit rates are applied to your tax return(s) and the correct tax forms and schedules are used. You can start free at eFile.com now and see the benefits of electronic tax preparation and e-filing.

What is the Saver's Credit?

Do you make contributions to a retirement plan? In addition to deducting the amount of your qualified contributions, you may be able to claim a tax credit for those same retirement contributions. The Saver's Credit, also known as the Credit for Qualified Retirement Savings Contributions, was designed to help lower to middle income ranges: the lower the income, the bigger tax break.

How much is the Saver's Credit worth? This tax credit may allow you to reduce your income tax dollar-for-dollar by up to $1,000 or $2,000 for Married Filing Jointly. The exact amount of the Saver's Credit is based on how much money you contributed and what percentage of your contributions qualify. This percentage, or credit rate, of 10%, 20%, or 50% is determined by your AGI or adjusted gross income and your tax return filing status. See the tables below for details by tax year.

The Saver's Tax credit is non-refundable tax credit, meaning it will only reduce the taxes you may owe and will not increase your tax refund. The maximum contribution used to calculate the amount of the Saver's Credit is $2,000 per person or $4,000 for a couple if filing jointly.

Saver's Credit example: A single taxpayers who made $18,000 in 2021 contributed exactly $4,000 to their retirement account. When they prepare their return, they find that they owe exactly $1,000 in federal taxes. On their tax return, they can expect a full credit amount of $2,000 since they are eligible to claim the maximum credit of 50% of their contribution. The credit will not be a refund, but will offset any tax liability. For this example, with a tax liability of $1,000 and a credit of $2,000, half of the credit will be used to reduce their tax liability to $0 and the remaining $1,000 will be eliminated.

Do you qualify for the credit for retirement contributions? Sign up for a free eFile.com account so you don't have to figure this out on your own. When you report your retirement information on the tax app, we will automatically calculate and apply the credit if you qualify on IRS Form 8880, Credit for Qualified Retirement Savings Contributions - eFileIT.

See also: Tax Guide for Retirees and IRS Publication 590-A, Individual Retirement Arrangement Contributions

2021 Saver's Credit Rates

The Saver's Credit rates below apply for Tax Year 2021. Wondering who qualifies for the Saver's Credit for 2021? When you prepare your 2021 Taxes via the eFile.com tax app, you can be certain to have the right rates calculated and applied for you return. e-File your 2021 Federal and State Taxes by April 18, 2022; estimate your 2021 Tax Return now with the eFile.com Tax Calculator.

Rate
Single, MFS*, Widowed
Head Household
MFJ *
50%
$0 - $19,750
$0 - $29,625
$0 - $39,500
20%
$19,751 - $21,500
$29,626 - $32,250
$39,501 - $43,000
10%
$21,501 - $33,000
$32,251 - $49,500
$43,001 - $66,000
0%
$33,001 plus
$49,501 plus
$66,001 plus

In this case study, let's say a couple contributed combined $1,000 to a retirement account and they are filing their taxes as married filing joint. If the adjusted gross income, or AGI, of the couple was $50,000, then the Saver's Tax Credit rate would be in the 10% range. As a result, the credit dollar amount would be $100 or 10% of $1,000 total retirement contribution. If the same couple's AGI had been $35,000, then the Saver's Tax Credit dollar amount would be $500 or 50% of $1,000. For married couples filing jointly, the retirement contribution from each spouse is eligible for the saver's tax credit. In order to max out the Saver's Tax Credit, each spouse would contribute $2,000. If the AGI income qualified them for the 50% credit amount, then each would get $1,000 for a total combined tax savings of $2,000. Keep in mind that the tax Saver's Tax Credit is a non-refundable tax credit.

2020 Saver's Credit Rates

The rates below apply for previous year or back taxes for Tax Year 2020. These can be used for informational purposes; plan your tax return each year that way you can eFileIT on eFile.com in the Tax Season it's due - don't handle any complicated forms!

Rate
Single, MFS*, Widowed
Head Household
MFJ *
50%
$0 - $19,500
$0 - $29,250
$0 - $39,000
20%
$19,501 - $21,250
$29,251 - $31,875
$39,001 - $42,500
10%
$21,251 - $32,500
$31,876 - $48,750
$42,501 - $65,000
0%
$32,501 plus
$48,751 plus
$65,001 plus

* MFS: Married Filing Separate. MFJ: Married Filing Joint.

Use the 2021 Tax Calculator and Estimator and avoid Tax Surprises.

Retirement Plans that Qualify for the Saver's Credit

Does my retirement plan qualify for the Saver's Credit? You can claim the tax credit for contributing to any of the following retirement plans:

  • Traditional IRA; Roth IRA; SIMPLE IRA
  • 401(k) plan; SIMPLE 401(k) plan; 403(b) annuity (including voluntary after-tax contributions); 501(c)(18) plan; 457 (Governmental) plan
  • Simplified Employee Pension or SEP
  • Achieving a Better Life or ABLE.

Saver's Credit Qualifications - Who is Eligible for the Saver's Tax Credit?

You must meet the following requirements in order to qualify for the Saver's Credit:

Rollover contributions do not add to or qualify for the credit. When calculating the credit, you must deduct, from the contributions you have made, the amount of any retirement plan or annuity distributions you received in the current tax year and in the previous two tax years. Also note that foreign income cannot be included in your adjusted gross income for the purposes of calculating this credit. The eFile Tax App calculates all of this for you.

Other Tax Benefits for Retirement Contributions:

  • Deduction for IRA Contributions: Even if you get the Saver's Credit, you can still make deductions on your tax return for qualified retirement contributions. The deduction for IRA contributions is an above-the-line deduction, which means that you do not have to itemize deductions to claim it. You can generally deduct the full amount of your qualified contributions, up to your contribution limits for the year.
  • Contribute to a Roth IRA: Whether or not you qualify for the Saver's Credit, you might consider making your contributions to a Roth IRA. You can also rollover your Traditional 401(k) or Governmental 457(b) plan into a Roth account. Contributions to a Roth IRA are taxable, but you can count your contributions toward the Saver's Credit. The biggest benefit of a Roth IRA is the fact that any capital gains it earns will be tax-free, and your post-retirement distributions will generally be nontaxable. Learn more about the tax benefits of Traditional and Roth IRAs in IRS Publication 590 - Individual Retirement Arrangements.
  • ABLE Contributions: For 2018 and later returns, you can use part or all of your Achieving a Better Life (ABLE) account contributions to claim the Saver's Credit if you are the designated beneficiary (eligible person with a disability) and you work. However, rollover contributions from another ABLE account or from a Qualified Tuition Plan (QTP) account do not qualify for the credit. In addition, any eligible contributions may be reduced by any recent distributions you received from your ABLE account. 

Related Information on Retirement Income and Tax Credits

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