How to Double Your Tax Savings With the Saver’s Credit

There are only a few opportunities in the federal tax code to double up on tax savings. The retirement savings contribution credit, commonly known as the saver’s credit, is one of those opportunities. If you qualify you should make sure you receive this valuable credit.

Table of Contents

1. What Is the Saver’s Credit?
2. Who Qualifies for the Saver’s Credit?
3. What Qualifies for the Saver’s Credit?
1. What Is an ABLE Account?
4. How Much Is the Saver’s Credit?
5. 2023 Saver’s Credit Rates
6. 2022 Saver’s Credit Rates
7. How to Claim the Savers Credit?
8. How Can the Saver’s Tax Credit Help Military Members?
9. Triple Tax Savings in a Combat Zone

What Is the Saver’s Credit?

The retirement savings contribution credit encourages taxpayers to invest for their retirement. The saver’s credit helps create a little more room in your budget to make retirement investing a little easier.

You can qualify for the saver’s credit by making eligible contributions to your IRA or employer-sponsored retirement plan.

Who Qualifies for the Saver’s Credit?

You are eligible to claim the saver’s credit if you’re:

• Age 18 or older
• Not claimed as a dependent on another person’s tax return
• Not a student. The IRS says you’re a student if for any part of five calendar months you:
  • Were enrolled as a full-time student at a school, or
  • Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
  • Technical, trade and mechanical schools count as schools under this criteria. However, on-the-job training courses, correspondence courses or online-only schools do not.

What Qualifies for the Saver’s Credit?

You can qualify for the saver’s credit through contributions to several types of tax savings plans or tax-advantaged investment accounts. As you may expect, most of these are retirement plans:

• The Thrift Savings Plan (TSP): Military service members have access to TSP, as well as many federal government employees.
• Other employer-sponsored retirement plans such as a 401k, 403(b), 457(b), SARSEP, or SIMPLE plan.
• An Individual Retirement Arrangement or IRA: Both a Roth IRA and a Traditional IRA are qualifying plans.

Rollovers from one retirement account to another do not qualify as contributions for the saver’s credit.

What Is an ABLE Account?

One savings account that isn’t a retirement plan that still qualifies for the retirement savings contribution credit, is the ABLE account. Congress passed the Achieving Better Life Experience Act In 2014, creating tax-advantaged ABLE accounts to help individuals with disabilities and their families.

The 2017 Tax Cuts and Jobs Act enabled beneficiaries contributing to ABLE accounts to qualify for the saver’s credit.

How Much Is the Saver’s Credit?

Under current tax law, the saver’s credit matches up to 50% of $2,000 for single filers or $4,000 for married couples filing jointly. That means qualifying individuals can receive up to a $1,000 tax credit. Couples can receive up to $2,000.

But, the saver’s credit phases out as your income level increases. Individuals making more than $36,500 in 2023 ($34,000 in 2022) are no longer eligible for the credit. Married couples filing joint returns who make more than $73,000 ($68,000 in 2022) are no longer eligible for the credit.

Heads of household making more than $54,750 ($51,000 in 2022) can’t receive the credit either.

If your income is low enough, you may receive either 50%, 20% or 10% of your contributions as a credit (up to the maximum credit) based on your Adjusted Gross Income (AGI), which is line 11 of the 202 1040 tax form. The phase-out range changes each year because the IRS adjusts it for inflation.

You can use the two tables below to calculate your saver’s credit if you’re eligible for it.

How to Claim the Savers Credit?

If you are using tax software to prepare your tax return, there are two ways to get the saver’s credit.

Tax software typically asks for information and in some cases, you can scan documents to transpose the information.

Your W-2 should list your contributions to employer-sponsored retirement plans in Box 12.

Make sure you enter all of the information on your W-2, including codes like the letter “D” next to your 401k contributions, denoting traditional (pre-tax) 401K contributions. Roth contributions are indicated by “AA.”

Note: Be careful not to enter any contributions that you made under employer-sponsored retirement plans where the software is asking for IRA account contributions. This could result in an error your tax software might not catch.

For IRAs and ABLE accounts, make sure that you enter contribution amounts for the tax year wherever your software asks for them. Usually, saver’s credit entries are listed under tax credits.

When you finish the return, you should be able to see how much of the retirement savings contribution credit you received (if you’re eligible) before filing.

If you are filing a paper tax return. then make sure you include Form 8880 in your tax filing.

Keep in mind, paper returns may be subject to delays due to the Covid-19 pandemic.

How Can the Saver’s Tax Credit Help Military Members?

The retirement savings contributions credit is particularly valuable for service members and their families.

Newly-enlisted service members who are automatically enrolled in TSP usually qualify for the saver’s credit.

Keep in mind that BAH and other allowances are not taxable, so they don’t count toward the phase-out limit.

Triple Tax Savings in a Combat Zone

Finally, remember that combat zone pay is tax-free and doesn’t count toward the saver’s credit phase-out limits either.

Think about the benefit of the Roth IRA in a tax-free combat zone: You don’t get taxed on the money you contribute. You won’t get taxed on the money that you withdraw in retirement. And, you might be able to get the saver’s credit for your contributions. It’s a rare triple up on tax savings that can benefit you and your family while you serve, when you file your taxes and in retirement.

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