The saver’s credit is a tax credit for contributing to an IRA or employer-sponsored retirement plan. In addition, the credit is nonrefundable, meaning the credit can only reduce your taxes, not provide you with a refund.
Who is eligible?
You are eligible for the credit if you are:
- Age 18 or older,
- Not claimed as a dependent on another person’s return, and
- Not a student
Also, if you are the beneficiary of an Achieving a Better Life Experience (ABLE) account, you may be able to receive the credit for contributions made to the account.
What is the Saver's credit amount?
Presently, the maximum amount is $1,000 ($2,000 for married filing jointly).
Furthermore, depending on your adjusted gross income and filing status, the amount is 50%, 20%, or 10% of the maximum contribution amount.
Adjusted gross income is your total income less any adjustments like educator expenses, paid student loan interest, or contributions to a retirement account.
Example:
Married filing jointly with an adjusted gross income of up to $41,000 can claim up to $1,000 credit per spouse if each spouse contributed at least $2,000 to their retirement plan.
IMPORTANT: Rollover contributions from an existing account do not qualify.
Adjusted gross income threshold
- Single tax filers: maximum AGI of $34,000
- Head of household: maximum AGI of $51,000
- Married filing jointly: maximum AGI of $68,000
What are some considerations for your IRA contributions?
Roth IRA contributions are not deductible, but the saver’s credit can offset the contribution. However, traditional IRA contributions are deductible and, thus, lower your adjusted gross income (AGI). Hence, if you have a certain income, the reduction of your AGI can increase the credit you receive.
What is the Saver's credit if only one spouse has income?
Married couples can open spousal IRAs if one spouse has little or no income. Specifically, the working spouse can make contributions on behalf of the non-working spouse eligible for the saver’s credit.
Eligibility
- Must be legally married
- No joint accounts; each spouse has their own IRA.
- Must file married filing jointly
Spousal IRAs can be Roth or Traditional IRAs, but spouses can make total contributions of $12,000 ($6,000 for each IRA). The limit increases to $14,000 ($7,000 for each IRA) if age 50 or older. Also, traditional spousal IRA contributions are completely deductible if neither spouse has a retirement plan at work.
