How the saver’s credit can reduce your tax bill by up to $1,000 if you saved for retirement

• The saver’s credit is a tax credit you can qualify for after contributing to a retirement account.
• The credit lowers your tax bill by 50%, 20%, or 10% of your contribution, depending on your income.
• Only the first $2,000 of contributions ($4,000 for married filing jointly) count toward the credit.
• This article was reviewed for accuracy and clarity by Lisa Niser, an expert on Personal Finance Insider’s tax review board.
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The retirement savings contributions credit, also known as the saver’s credit, is a tax credit you can receive for contributing to a retirement fund. The credit is calculated into your tax return, which is more advantageous than a tax deduction because it gives you a dollar-for-dollar discount on your tax bill. If you get a $500 saver’s credit, you’ll pay $500 less on your tax bill.

The purpose of the saver’s credit is to put money back in your pocket after saving for retirement. “It’s kind of like an incentive for people to put money away for retirement with the additional benefit of getting a credit,” says Cassandra Kirby, an enrolled agent and Partner and Private Wealth Advisor at Braun-Bostich & Associates in Pittsburgh.

Who can claim the saver’s credit?

You can claim the saver’s credit no matter your filing status: Married filing jointly, head of household, single, married filing separately, or qualifying widow(er) all can receive the credit. However, your filing status determines the income maximum you fall under. 

There are 3 requirements to be eligible to claim the saver’s credit:

First, you must be over 18 years old and you can’t be a dependent on someone else’s tax returns or a student.

Next, you need to earn under the income threshold for your filing status. For 2021, the maximum income is $66,000 for joint filers and $49,500 for heads of household. If you’re filing under any other category, your AGI maxes out at $33,000.  For 2022, the maximums are $68,000, $51,000, and $34,000.

Because the qualifying incomes are low, it can be difficult to have the right amount of income and owe money in taxes. “It would appeal to younger people that are working that don’t have a large income and then also retired or older people who have a lower income but are still looking for savings and tax-efficient ways to do it,” says Kirby.

Finally, you need to have contributed to an eligible account. Most contributions to one of the following retirement accounts qualify:

• Traditional or Roth IRA
• 401(k), 403(b), or governmental 457(b)
• SARSEP or SIMPLE plan
• Thrift Savings Plan
• 501(c)(18)(D) plan
• An ABLE account that designates you as the beneficiary

“It’s something for older people or retired people to consider if they have part-time earnings or their spouse has part-time earnings,” says Kirby.

How much is the saver’s credit? 

Anyone who qualifies for the saver’s credit will receive a percentage of their retirement contribution back as a tax credit. The saver’s credit is worth 50%, 20%, or 10% of your contribution, depending on your income level. However, you can receive the credit only on the first $2,000 per individual and $4,000 per married couple (filing jointly) that you contribute to retirement.

In other words, the maximum credit someone can receive is 50% of $2,000 (or $1,000) — but the credit can be bumped up to $2,000 if you’re married and filing jointly. Thus, you can reduce your tax bill by up to $1,000 per individual by taking advantage of the saver’s credit.

The table below explains the percentage you’ll receive back based on your income for the current 2021 tax year:

Credit rate	Married filing jointly	Head of household	All other filers*
50% of your 2021 contribution	AGI under $39,500	AGI under $29,625	AGI under $19,750
20% of your 2021 contribution	$39,501-$43,000	$29,626-$32,250	$19,751-$21,500
10% of your 2021 contribution	$43,001-$66,000	$32,251-$49500	$21,501-$33,000
0% of your 2021 contribution	More than $$66,000	More than $49,500	More than $33,000

Source: IRS. *Single, married filing separately, or qualifying widow(er)

And here are the rates for 2022:

Credit rate	Married filing jointly	Head of household	All other filers*
50% of your 2022 contribution	AGI under $41,000	AGI under $30,750	AGI under $20,500
20% of your 2022 contribution	$41,001-$44,000	$30,751-$33,000	$20,501-$22,000
10% of your 2022 contribution	$44,001-$68,000	$33,001-$51,000	$22,001-$34,000
0% of your 2022 contribution	over $68,000	over $51,000	over $34,000

Source: IRS. *Single, married filing separately, or qualifying widow(er)

The financial takeaway

The saver’s credit is one method of reducing a tax bill for anyone who can claim it. This savings can offset some of the cost of contributing to a retirement account and decrease the burden of saving for retirement.

When you’re filing taxes, be sure to check your income, filing status, and contribution level using the information in this article to see if you qualify for the saver’s credit.