Saving for retirement is a challenge if you’re on a tight budget. But you may qualify for a significant tax credit that will help you get started.
The Retirement Savings Contribution Credit, better known as the Saver’s Credit, is designed to encourage people with low and middle incomes to begin building their retirement nest eggs. Eligible taxpayers can claim a credit of up to $1,000 for single filers or $2,000 for married couples who file jointly. The credit is based on 10 percent, 20 percent, or 50 percent of the first $2,000 ($4,000 for joint filers) contributed to retirement accounts, including 401(k)s, traditional individual retirement accounts (IRAs) and Roth IRAs. If you qualify, the lower your income, the higher the percentage of retirement plan contributions you’ll get back on your tax return.
For the 2023 tax year, single filers and married people filing separate returns with adjusted gross income (AGI) of $36,500 or less may be eligible for the credit. Married couples filing jointly must have AGI of $73,000 or less, while head-of-household filers must have AGI of $54,750 or less. Taxpayers younger than 18, full-time students and anyone claimed as a dependent on someone else’s tax return aren’t eligible, regardless of their income.
A tax credit is more valuable than a deduction because it provides a dollar-for-dollar reduction in your tax bill. However, the Saver’s Credit is non-refundable, which means you can’t claim it for more than the amount of tax you owe. For example, if you owe $500 in taxes and qualify for a $750 Saver’s Credit, your tax bill will be wiped out, but you won’t get a $250 refund.
To claim the Saver’s Credit, calculate your credit on Form 8880 and report the amount on your federal Form 1040. Attach Form 8880 when you file your return.
Legislation enacted in late 2022 will make the Saver’s Credit even more valuable, starting in 2027. Instead of getting a credit, eligible taxpayers will receive matching contributions deposited directly into a 401(k) or traditional IRA (Roth IRAs aren’t eligible). The matching funds won’t count toward the annual contribution limit. (For IRAs, the maximum contribution is $7,000 in 2024, or $8,000 for workers 50 or older; for 401(k)s, it’s $23,000, or $30,500 for those 50 or older.)
The matching contribution will equal 50 percent of the first $2,000 contributed to eligible retirement accounts. The match (or credit, if the match is applied against tax liability) will also be refundable, so taxpayers won’t lose part of the match if their tax liability is less than the amount of the match allowed. Matching contributions of less than $100 will be applied against the individual’s tax liability, as is the case for the current tax credit, instead of deposited into a retirement account.
The match will be phased out for single taxpayers with AGI of $20,500–35,500 and joint filers with AGI between $41,000 and $71,000. These figures will be adjusted annually for inflation starting in 2028.
