Retirement Savings: The Saver’s Credit Explained

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Participating in retirement savings plans is not only a great way to help ensure a financially secure retirement, but it’s also an opportunity to realize tax benefits. However, there’s at least one retirement plan tax benefit that many people are not aware of.

The Retirement Savings Contribution Credit, or the Saver’s Credit for short, is a non-refundable tax credit that’s available to low- and moderate-income individuals and couples who save money for retirement via a traditional or Roth IRA, 401k, 403(b), government 457, SIMPLE IRA, SEP or ABLE retirement plan.

A Double Deduction

One attractive feature of the Saver’s Credit is that it can be claimed in addition to the normal tax deduction you might take when contributing to one of these retirement plans. For the tax year 2020 (and tax year 2021), you and your spouse can each contribute up to the following amounts to a qualified retirement plan:

  • $6,000 to a traditional or Roth IRA or $7,000 if you’re age 50 or over
  • $13,500 to a SIMPLE IRA or $16,500 if you’re 50 years of age or over
  • $19,500 to a 401k, 403(b) or government 457 plan or $26,000 if you’re 50 years of age or over
  • $57,000 to a SEP or 25% of net earnings from self-employment
  • $15,000 to an ABLE account

How Much is the Credit?

The maximum amount of the Saver’s Credit is $1,000 for individuals or $2,000 for married couples filing jointly. If you’re single, you can claim the credit on up to $2,000 that you contribute to a qualifying retirement plan. If you’re married and file your tax return jointly, you can claim the credit on up to $4,000 in contributions.

 

The Saver’s Credit is designed to encourage low- and moderate-income individuals and couples to save for retirement. The annual income limits for claiming the Saver’s Credit for tax year 2020 are as follows:

  • $32,500 for individuals
  • $48,750 for heads of household
  • $65,000 for married couples filing jointly
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