Saver's Credit: Who Qualifies for the Retirement Savings Credit?

The Saver's Credit, also called the retirement savings contributions credit, can lower your tax if you save for retirement. It is a credit, so it reduces the tax you owe. You claim it on Form 8880. IRS: Retirement Savings Contributions Credit

Who can claim it?

You must meet three tests:

• You are age 18 or older.
• No one else can claim you as a dependent on their return.
• You are not a student. You count as a student if, during any 5 calendar months of the year, you were enrolled full time at a school or took a full-time, on-farm training course.

A school includes technical, trade, and mechanical schools. It does not include on-the-job training, correspondence schools, or schools that offer courses only over the Internet.

What counts as a contribution?

These contributions can count:

• Contributions to a traditional or Roth IRA.
• Elective salary deferrals to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan.
• Voluntary after-tax contributions to a qualified retirement plan, including the federal Thrift Savings Plan.
• Contributions to an ABLE account, if you are the designated beneficiary.

Rollovers do not count. Recent withdrawals from a retirement plan or IRA can reduce the contributions you may count. Form 8880 and its instructions list the other plan types that qualify.

How much is the credit?

The credit is 50%, 20%, or 10% of your eligible contribution. Your rate depends on your adjusted gross income (AGI). The income limits for each rate change from year to year, so check the current Form 8880 instructions for the amounts. See What Is AGI (Adjusted Gross Income)? for how AGI is figured.

The rate applies only to eligible contributions you made in the year. It does not apply to your total savings.

The contribution cap is $2,000 per person, or $4,000 if you file jointly. That means the largest credit is $1,000 per person, or $2,000 on a joint return.

The cap applies to all eligible contributions combined. If you also made a 401(k) deferral, it counts toward the same $2,000 limit as your IRA contribution.

An example of the math

Illustration only. Maria puts $2,000 into a traditional IRA. Her rate band, for this example, is 20%. Her credit is 20% of $2,000, or $400. If her income put her in the 50% band, the credit would be $1,000. The rate is set by income. The contribution cap is the same either way.

Example: the cap

Illustration only. Sam contributes $3,000 to a Roth IRA. Only the first $2,000 counts toward the credit. At a 10% rate, the credit would be $200, which is 10% of $2,000. The extra $1,000 does not add to the credit.

Common mistakes

• Counting a rollover as a contribution.
• Forgetting the student test.
• Using the wrong income figure to pick the rate.
• Claiming the credit when someone else claims you as a dependent.

Keep in mind

The credit is for contributions, not for the balance in your account. A contribution to a traditional IRA can also affect your deduction, which is a separate question. For IRA rules, see Traditional IRA Contributions: How the Tax Deduction Works.

What to do next

Form 8880 asks for your eligible contributions and your AGI. Its instructions walk through each line in order, so follow them rather than estimating the rate.

1. Check the three eligibility tests.
2. Add up your eligible contributions for the year, leaving out rollovers.
3. Find your AGI on your return.
4. Look up your rate in the current Form 8880 instructions.
5. Complete Form 8880 and include it with your return.

This page is general information, not advice about your return. Publication 590-A covers IRA contributions in detail.

Sources: IRS: Retirement Savings Contributions Credit (Saver's Credit) (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit); IRS: About Form 8880 (https://www.irs.gov/forms-pubs/about-form-8880); IRS: Publication 590-A, Contributions to Individual Retirement Arrangements (https://www.irs.gov/publications/p590a) This is general information, not advice about your specific return.

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