The Saver’s Credit is a tax incentive designed to encourage individuals to contribute to their retirement savings, whether through an Individual Retirement Account (IRA) or an employer-sponsored retirement plan. It’s important to note that this credit is nonrefundable, meaning it can reduce your tax liability but will not result in a refund.
Who Is Eligible for the Saver’s Credit?
You may qualify for the Saver’s Credit if you meet the following criteria:
- Age: You must be 18 years or older.
- Dependency Status: You cannot be claimed as a dependent on someone else’s tax return.
- Student Status: You should not be a student.
Additionally, if you are a beneficiary of an Achieving a Better Life Experience (ABLE) account, you may also be eligible for the credit based on your contributions.
What is the Saver's credit amount?
The maximum Saver’s Credit amount is currently $1,000 for individuals and $2,000 for those married filing jointly. Your actual credit depends on your adjusted gross income (AGI) and filing status, with potential credit rates of 50%, 20%, or 10% of your contributions.
Adjusted Gross Income (AGI) is your total income minus specific deductions, such as educator expenses, student loan interest, or retirement account contributions.
Example:
For married couples filing jointly, if your combined AGI for 2024 is up to $46,000 and each spouse contributes at least $2,000 to their retirement plans, you could claim a credit of up to $1,000 for each spouse.
IMPORTANT: Rollover contributions from existing accounts do not qualify for this credit.
Adjusted gross income thresholds
- Single tax filers: maximum AGI of $36,500
- Head of household: maximum AGI of $54,750
- Married filing jointly: maximum AGI of $73,000
Considerations for your IRA Contributions
While Roth IRA contributions are not tax-deductible, the Saver’s Credit can help offset these contributions. In contrast, traditional IRA contributions are tax-deductible, which lowers your AGI. Reducing your AGI can potentially increase the Saver’s Credit you receive if your income falls within the eligible range.
What if only one spouse has income?
Married couples can benefit from spousal IRAs, allowing the working spouse to contribute on behalf of the non-working spouse, potentially qualifying both for the Saver’s Credit.
Eligibility Requirements:
- Both spouses must be legally married.
- Each spouse must maintain their own IRA account (no joint accounts).
- You must file as married filing jointly.
Contribution Limits: Spouses can contribute a total of $12,000 ($6,000 for each IRA). This limit increases to $14,000 ($7,000 for each IRA) if either spouse is age 50 or older. Furthermore, if neither spouse has a retirement plan at work, traditional spousal IRA contributions are fully deductible.
