How This Tax Credit for Retirement Investing Can Save You Up to $1,000

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Investing in your own financial independence could earn you a tax break this year.

By claiming the Retirement Savings Contributions Credit (Saver’s Credit), you can get a percentage of your contributions toward eligible retirement savings accounts back when you file your federal tax return. Your eligibility, and the amount you qualify for, varies depending on your retirement plan, adjusted gross income, filing status, and other factors. 

If you contributed to a retirement plan in 2021, here’s what you need to know about claiming the Saver’s Credit — and what you can still do before filing your return to maximize the benefit.

What Is the Saver’s Tax Credit? 

The Saver’s Tax Credit allows eligible taxpayers to save money on taxes by contributing to an eligible retirement account. 

Tax credits like this offer some of the most valuable savings you can get at tax time. Unlike a tax deduction, which reduces the amount of taxable income you report, a tax credit directly reduces the amount of taxes you owe or increases the refund amount you’ll receive.

And combined with the benefits that tax-advantaged retirement accounts — like a Roth IRA or 401(k) — already provide, the Saver’s Credit essentially gives your contributions a multiplied tax advantage.

“You get triple benefits,” says Mark Steber, chief tax information officer for Jackson Hewitt, which provides tax preparation services. “You get an income tax reduction, you can get the Saver’s Credit — which is a dollar for dollar offset of your tax liability — and you get tax-free earnings. And it doesn’t require a great deal more effort than putting a few hundred or a few thousand dollars in the bank.” 

For instance, if you make $1,000 in pre-tax contributions to your employer-sponsored 401(k) plan throughout the year, you’ll reduce your taxable income by $1,000. Then, if you qualify for the full Saver’s Credit, you’ll get 50% of your contribution back, or a $500 credit when you file federal income taxes. And over time, the money you contributed grows within the account until you’re ready to retire.

You Still Have Time to Make Contributions for 2021

If you didn’t max out your retirement plan in calendar year 2021, some accounts eligible for the Saver’s Credit still allow contributions you make today to count toward your 2021 total — at least until April 15. 

If you contribute to a traditional or Roth IRA before submitting your tax return this spring, you can account for it when you file and claim the Saver’s Credit and other qualifying tax deductions, Steber says. Just remember to designate that money toward your 2021 contributions, and that the 2021 IRA contribution limit is $6,000 (or $7,000 if you’re 50 or older). 

You can make 2021 IRA contributions until April 15, 2022, according to the IRS.

However, not every retirement account allows this. You won’t be able to make further 401(k) contributions toward your 2021 total, since the deadline for 2021 401(k) contributions was Dec. 31, 2021. 

Who Is Eligible for the Saver’s Credit?

The Saver’s Credit is for taxpayers under a certain income threshold who contribute to qualifying retirement plans. To be eligible for the credit, you should be over 18 years old, not a student, and not listed as a dependent on someone else’s tax return. 

However, eligibility is capped after reaching specific income limits. If you make more than $34,000 as a single filer, $51,000 filing as head of household, or $68,000 as a married couple filing jointly, you won’t be eligible for any Saver’s Credit amount.

Only new contributions to an eligible retirement account apply, so rollover contributions would not count. There are a few different eligible retirement plans, including:

  • Traditional or Roth IRA 
  • Elective salary deferral contributions to 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan
  • After-tax contributions you made to a retirement plan
  • Contributions to a 501(c)(18)(D) plan 
  • Contributions to an Achieving a Better Life Experience (ABLE) account if you’re the beneficiary 

How Much to Expect from the Saver’s Credit

The amount you’ll qualify for with the Saver’s Credit depends on how much you contributed toward qualifying retirement plans in 2021 and your income level, based on your adjusted gross income listed on your Form 1040.

The credit is equivalent to either 50%, 20%, or 10% of your contribution based on your income, and the maximum eligible contribution amount is $2,000 ($4,000 for married filing jointly). Therefore, you can get up to $1,000 (or $2,000 if married filing jointly) with the Saver’s Credit this year if you qualify for the highest amount. 

Here’s how the percentages phase out by income level, according to the IRS:

Credit Married Filing Jointly Head of HouseholdAll Others 
50%$41,000 or less$30,750 or less $20,050 or less 
20%$41,001 – $44,000$30,751 – $33,000$20,051 – $22,000
10%$44,001 – $68,000$33,001 – $51,000$22,001 – $34,000
0%More than $68,000More than $51,000More than $34,000 


For instance, say you are married filing jointly with an AGI of $43,000. You can claim up to 20% of your qualifying retirement contributions from 2021 — if you contributed a total of $2,000, that means you would get a credit equal to $400 when you file your return.

How to Claim the Saver’s Credit

The Saver’s Credit is a lesser-known credit that only applies to those within a certain income threshold and isn’t automatically applied. So, be sure to ask your tax preparer about your eligibility alongside other tax breaks you may qualify for. 

To claim the Saver’s Credit, you or your tax preparer will complete the Credit for Qualified Retirement Savings Contributions Form (Form 8880). You’ll need to show proof of your contributions — usually your paycheck, IRA statement, or your contribution statement. You’ll also need to show proof of your income to determine your eligibility for the credit — such as your W2 showing your contributions to your 401(k). 

Even if you don’t think you qualify based on income, but you’re on the cusp of the income threshold, you may still be able to claim the credit, says Tony Chan, CFP, investment advisor and tax planner at Crossroads Planning in Orange, California. That’s because eligibility is determined based on AGI (adjusted gross income) which is calculated after retirement contributions. You can use the table above, your return, and Form 8880 to check your eligibility. 

If you use tax software to file your taxes, double check that Form 8880, Credit for Qualified Retired Savings Contributions form, populates before submitting your tax return, or lookout for the software program to ask you questions about retirement contributions. Chan recommends that with any tax filing software, it’s best to review the income tax return itself for any errors before submitting.