Saver’s Credit Rewards You For Saving

Money in a jar.

Did you know that there is a valuable tax credit for lower-income workers who contribute to retirement savings accounts?  The Retirement Savings Contribution Credit (Saver’s Credit) rewards lower-income savers with an income tax credit of up to 50% of the amount contributed to qualified retirement savings plans.  A special note for military families:  Because eligibility is based upon Adjusted Gross Income (AGI), even higher-earning military families may qualify during years with tax-free income due to time spent in a combat zone.

Who Is Eligible?

You may be eligible for the Saver’s Credit if you are:

  • Age 18 or older,
  • Not a full-time student,
  • Not claimed as a dependent on another person’s return, and
  • Contributing to a qualified retirement savings plan.

What Savings Are Eligible for the Credit?

Your contributions to the following plans are eligible for the Saver’s Credit:

  • traditional IRA,
  • Roth IRA,
  • 401(k),
  • 403(b),
  • 501(c)(18),
  • 457(b),
  • Thrift Savings Plan,
  • SIMPLE IRA,
  • SEP IRA, and
  • other qualified retirement plans.

Contributions to these accounts made by your employer on your behalf are not eligible for this credit.

If you’ve taken any distributions from a plan within the last two years, there are special rules about how your contributions are calculated.  If you are in this situation, you need additional assistance with the process.

How Much Is The Credit?

The Saver’s Credit amount is based upon your filing status and AGI.  Keep in mind that the Saver’s Credit is non-refundable, which means that while it can bring your tax liability to zero, it will not generate a payment if you have no tax due.

For single taxpayers in 2016:

You can receive a credit of 50% of your contribution if your AGI is less than $18,500 per year.

You can receive a credit of 20% of your contribution if your AGI is between $18,501 and $20,000 per year.

You can receive a credit of 10% of your contribution if your AGI is between $20,001 and $30,750 per year.

Single taxpayers are not eligible for the credit if your AGI exceeds $30,750 per year.

For head of household taxpayers in 2016:

You can receive a credit of 50% of your contribution if your AGI is less than $27,750 per year.

You can receive a credit of 20% of your contribution if your AGI is between $27,751 and $30,000 per year.

You can receive a credit of 10% of your contribution if your AGI is between $30,001 and $46,125 per year.

Head of household filers are not eligible for the credit if your AGI exceeds $46,125 per year.

For married taxpayers filing jointly in 2016:

You can receive a credit of 50% of your contribution if your AGI is less than $37,000 per year.

You can receive a credit of 20% of your contribution if your AGI is between $37,001 and $40,000 per year.

You can receive a credit of 10% of your contribution if your AGI is between $40,001 and $61,500 per year.

Married filing joint taxpayers are not eligible for the credit if your AGI exceeds $61,500 per year.

How to Claim

The credit can be claimed by using the IRS Form 8880.  It is a relatively simple form, and the instructions are included.

Most tax preparation software will walk you through eligibility for the Saver’s Credit.  Even so, be a little familiar with it so that you can be sure that your tax software is getting all the right details.  Not sure if you are eligible?  Read the form’s instructions, check with your bases Volunteer Income Tax Assistance (VITA) office, or consult a tax professional.  This credit can be quite valuable, especially if you contribute significant amounts to your TSP or other qualified retirement plans.

If you meet the income qualifications for the Saver’s Credit, you would be silly not to contribute to a qualified retirement plan.  This is basically free money!  Take advantage of it!

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.