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 potentially 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, 401(k), 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 tax year 2023 you and your spouse can each contribute up to the following amounts to a qualified retirement plan:

• $6,500 to a traditional or Roth IRA or $7,500 if you’re age 50 or over
• $15,500 to a SIMPLE IRA or $19,500 if you’re age 50 or over
• $22,500 to a 401(k), 403(b) or government 457 plan or $30,000 if you’re 50 years of age or over
• $66,000 to a SEP or 25% of net earnings from self-employment
• $16,000 to an ABLE account

How much is the Saver's 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 2023 are as follows:

• $34,000 for individuals
• $51,000 for heads of household
• $68,000 for married couples filing jointly

The Saver’s Credit is worth a certain percentage you contribute to a qualifying retirement plan, depending on your adjusted gross income (AGI) and filing status. Here are the AGI limits for claiming the Saver’s Credit in 2023:

• 50% credit, or up to $1,000 for individuals or $2,000 for married couples filing jointly — AGI below $21,750 for individuals, $32,625 for heads of household or $43,500 for married couples filing jointly.
• 20% credit, or up to $400 for individuals or $800 for married couples filing jointly — AGI between $19,501 and $21,250 for individuals, $29,251 and $31,875 for heads of household and $39,001 and $42,500 for married couples filing jointly.
• 10% credit, or up to $200 for individuals or $400 for married couples filing jointly — AGI between $21,251 and $32,500 for individuals, $31,876 and $48,750 for heads of household and $42,501 and $65,000 for married couples filing jointly.

For example, if you’re single, earn $19,000 and contribute $1,000 to an eligible retirement account, your Saver’s Credit would be $500. If you’re married and file jointly, earn $40,000 and contribute $3,000 to an eligible retirement account, your Saver’s Credit would be $600. And if you’re a head of household, earn $45,000 and contribute $2,000 to an eligible account, your Saver’s Credit would be $200.

Other qualification criteria for claiming the Saver’s Credit include the following:

• You must be at least 18 years old.
• You cannot be a full-time student.
• You cannot be claimed as a dependent on anyone else’s tax return.
• Contributions cannot be rollovers from an existing account.

How to claim the Saver’s Credit

If eligible, you can claim the Saver’s Credit on IRS Form 8880, which you’ll attach to IRS Form 1040 or 1040A when you file your tax return. Note: You cannot claim the Saver’s Credit if you file IRS Form 1040EZ.

Finally, remember that the Saver’s Credit is a tax credit, not a deduction. Credits are more valuable than deductions because they reduce your taxable income dollar for dollar. Tax deductions, on the other hand, reduce your taxable income, which in turns lowers your taxes but not as much as on a dollar-for-dollar basis.

Also note that the Saver’s Credit is a non-refundable tax credit. This means you won’t get the credit in the form of a tax refund if your tax liability for the year is less than zero.

Next steps for you

Strategizing your tax credits can get complicated. Knowing what you owe starts with knowing what you have. Get a handle on your finances with free online tools, which will give you a 360-degree view of your money, allow you to see all your accounts in one place and go deeper into planning and analyzing your finances.

For individualized insights, consider hiring an unbiased tax professional to help you determine the tax credits for which you may qualify.