The Saver’s Credit is a federal tax credit incentivizes low- to moderate-income Americans to save for retirement. It’s also known as the “Retirement Savings Contributions Credit,” though IRS Form 8880 is simply “Credit for Qualified Retirement Savings Contributions.” It’s a nonrefundable tax credit, meaning it can’t reduce your federal income tax bill below zero. The credit’s size varies, depending on your income and retirement account contributions. The credit is designed to supplement the benefits of saving through a workplace retirement plan, like a 401(k), or an individual retirement account, such as a traditional or Roth IRA. While the credit itself is a great incentive to save, it can be difficult to get started in the first place.
Who is Eligible for Saver’s Credit?
Eligible individuals are those who contribute to a qualified workplace retirement plan, such as a 401(k), 403(b), SIMPLE IRA, SEP IRA, governmental 457 plans, and the federal government’s Thrift Savings Plan (TSP)—and may also qualify for a traditional and/or Roth IRA. To be eligible, you must have earned income, meet age and filing status requirements, and not be claimed as a dependent on someone else’s return. The Saver’s Credit is available to those who pay taxes in the United States and are 18 or older.
You can claim the Credit on Form 8880 and submit it along with your tax return. You may qualify for the saver’s credit if your adjusted gross income (AGI) is $68,000 or less for married couples filing jointly or $51,000 or less for heads of household. You must also make qualifying contributions to a qualified retirement or ABLE plan during the tax year and file Form 8880 with your tax return. The Saver’s Credit is an important opportunity to encourage more people to save for their retirement. But many who could benefit are missing out, with only 49% aware of the credit, according to a survey.
Saver’s credit is nonrefundable. If the credit pushes your tax bill below zero, you will not receive a cash refund for the excess amount. Some other tax credits, such as the Earned Income Tax Credit and Child Tax Credit, are refundable. To help address these issues, a new law has been proposed to replace the Saver’s Credit with a new savings match program called the “Saver’s Match.” The law would increase the credit limits, make it fully refundable, and require the IRS to deposit any unused credit directly into retirement accounts, similar to a company 401(k) match. The new credit would start in 2027.