by Daniel | Last Updated September 9th, 2021
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Today I’m going to talk about an incentive created by the IRS called the Retirement Savings Contribution Credit.
This is a credit that is specifically designed to help people actually start saving for retirement, and is definitely worth taking advantage of if you have the means to do so.
And just a side note, this is not financial advice, if you are considering contributing to a retirement account so you can receive a Saver’s Credit, I suggest talking to a Certified Public Accountant (CPA).
So What Exactly Is The Savers Credit?
The Savers Credit basically gives low to moderate-income taxpayers a chance to earn up to $1,000 as an individual and up to $2,000 as a married couple just for contributing to a qualified retirement plan, and this credit can actually reduce or sometimes even eliminate your tax bill.
Who is Eligible?
So to make a claim for the Savers Credit you must meet the following requirements:
- You must be 18 or older
- Not be a full-time student
- Made a contribution to a retirement account during the tax year that you are filling a return.
- Meet the income requiremments
- Not be claimed as a dependant on another persons tax return
And for 2021, your adjusted gross income must not exceed the following levels:
- $66,000 as a married couple that is filing jointly
- $49,500 as the head of a household
- $33,000 for all other taxpayers
2021 Saver’s Credit Rates and Adjusted Gross Income
| Credit | Joint Filers | Head of Household | Single Filer |
| 50% | $39,500 or less | $29,625 or less | $19,750 or less |
| 20% | $39,501 – $43,000 | $29,626 – $32,250 | $19,751 – $21,500 |
| 10% | $43,001 – $66,000 | $32,251 – $49,500 | $21,501 – $33,000 |
So as you can see, as your income increases, the amount of credit you can claim actually decreases.
How Does The Savers Credit Reduce Your Tax Bill?
First of all, it’s important to know what the maximum amount you can contribute is.
For a head of household or single filer, the maximum contribution is $2,000
And if you are filing jointly as a married couple the maximum contribution is $4,000.
And how this works is quite straightforward, if for example, you are filing jointly as a married couple and your combined adjusted gross income is say $40,000, you will fall into the category that will allow for a 20% credit.
So if you were to put in $2,000 each, for a total of $4,000, you would receive a credit of $800.
Now seeing that the Savers Credit is a non-refundable tax credit, it can actually reduce the amount of tax you might owe.
So in the example above where there was an $800 tax credit received, this would actually come off your tax bill.
What Retirement Accounts Qualify?
To be eligible to receive the Saver’s Credit you can make contributions to the following retirement accounts:
- 401k
- 403b or 457b plans
- Traditional or Roth IRA
- SEP-IRA or Simple IRA
- ABLE accounts
And to make sure you do qualify for the Savers Credit, any contributions you make must be new money, basically, you can’t just roll over money from an existing account, also you can’t claim any contributions that were made to these accounts from your employer.