The Saver’s Credit can knock as much as $1,000 or $2,000 off your federal income tax bill, depending on whether you file an individual or joint return. Yet many folks don’t know it exists.
That’s right: 62% of workers are unaware of the Saver’s Credit, also known as the Retirement Savings Contributions Credit, according to a 2018 survey. And retirees who still save money in retirement accounts may be unaware they could be eligible for the credit.
If you, too, are unfamiliar with the Saver’s Credit, now’s a good a time as any to get acquainted. The IRS announced recently that the income limits for the credit — which are a key factor in determining your eligibility for the tax break — will rise in 2020 on account of inflation.
How much is the Saver’s Credit worth?
The first step toward becoming eligible for the Retirement Savings Contributions Credit — as its formal name implies — is saving money in a retirement account.
You may be able to take the credit for contributions to the following types of retirement accounts:
- Traditional individual retirement account (IRA)
- Roth IRA
- SIMPLE IRA
- 457(b) plan
The credit is worth anywhere from 10% to 50% of the amount of money that you contribute to such accounts in a given year — up to $2,000 or, for married couples filing a joint return, up to $4,000.
That means the maximum amount of the Saver’s Credit itself is $1,000 or $2,000, depending on your tax-filing status. And that comes right off the top of your tax bill.
Remember, as we explain in “3 Key Questions Every Taxpayer Must Answer“:
“A tax deduction lowers your taxable income, while a tax credit lowers your tax bill dollar for dollar.”
What are the 2020 income limits for the Saver’s Credit?
The Saver’s Credit is for folks with low or moderate incomes, according to the IRS.
To be eligible for it, your adjusted gross income, or AGI (which you report on your tax return), must be within a certain range.
For 2020, you may be eligible for the Saver’s Credit if your AGI is:
- $65,000 or less, and your tax-filing status is married filing jointly
- $48,750 or less, and your tax-filing status is head of household
- $32,500 or less, and your tax-filing status is single, married filing separately, or qualifying widow(er)
If you are eligible for the Saver’s Credit, your AGI also determines how much the credit is worth — that is, the percentage of your retirement account contributions. For 2020, those AGI ranges are as follows:
|How much the credit is worth||For married filing jointly||For head of household||For all other tax-filing statuses|
|50% of your contribution||AGI is up to $39,000||AGI is up to $29,250||AGI is up to $19,500|
|20% of your contribution||AGI is $39,001 – $42,500||AGI is $29,250 – $31,875||AGI is $19,501 – $21,250|
|10% of your contribution||AGI is $42,501 – $65,000||AGI is $31,876 – $48,750||AGI is $21,251 – $32,500|
Let’s say your AGI is $30,000 next year, and your tax filing status is single. If you contributed $3,000 to an eligible retirement account next year, the Saver’s Credit would be worth 10% of that contribution. That’s $300 off your tax bill.
There are a few other stipulations for the credit, though.
Notably, you must be 18 or older, not a full-time student and not claimed as a dependent on someone else’s tax return to be eligible for the Saver’s Credit. You can learn more about it on the IRS’ Saver’s Credit webpage.
You also can learn about other tax breaks that you might be unaware of by checking out “Did You Miss These 7 Tax Credits and Deductions?“
Retire on your own terms with help from this course
The Only Retirement Guide You'll Ever Need gives you the knowledge you need to retire on your own terms. Sure, you can pay a financial adviser, but this online course gives you total control to create a customized retirement plan around the things that matter to you -- without the fees you can expect from financial firms and advisers.
You'll get expert, personalized advice. You'll have access to the latest tools. You'll have ongoing support. And when you've completed the course, you'll be ready to approach your retirement with confidence and with peace of mind.
It's time to plan the best years of your life. Let's get started.