Taxes

Q&A: What is the Retirement Savings Contributions Credit (Saver’s Credit)?

The Retirement Savings Contributions Credit (Saver’s Credit) is a tax credit designed to incentivize retirement savings. Taxpayers with income below a certain level can take advantage of it by contributing to a qualified retirement plan (such as a Traditional IRA, Roth IRA, 401k/403b, or 457).

You’re eligible for the credit if you’re:

This credit is only applicable for up to $2,000 of contributions per taxpayer. The credit amount is determined based on filing status and AGI:

2020 Saver’s Credit

Credit RateMarried Filing JointlyHead of HouseholdAll Other Filers*
50% of your contributionAGI not more than $39,000AGI not more than $29,250AGI not more than $19,500
20% of your contribution$39,001 – $42,500$29,250 – $31,875$19,501 – $21,250
10% of your contribution$42,501 – $65,000$31,876 – $48,750$21,251 – $32,500
0% of your contributionmore than $65,000more than $48,750more than $32,500
*Single, married filing separately, or qualifying widow(er)

Pro Tip: Contributions to individual retirement accounts (IRAs; such as Traditional and Roth IRAs) for a specific year can be made up until the tax deadline (usually April 15th of the following year). This lag can be used to optimize financial strategy.

What someone would need to calculate it for their return:
Form 1040Form 1040-SR, or Form 1040-NR
Schedule 1
Schedule 3
Form 8880

To see if you received the credit, it can be found on the following lines of each tax return form:
2017 1040: Line 51
2017 1040A: Line 34
2018 1040: Line 12b (from Schedule 3)
2019 1040: Line 13b (from Schedule 3)
2019 1040-SR: Line 13b (from Schedule 3)
All 1040-NR‘s: Line 48

If you did not receive it and you should have, you can amend your return with a 1040X.

Real-life Application: Come tax filing time, Person A had AGI of $30,000 in 2020 and decided to contribute $2,000 to a Roth IRA. They have a filing status of single, so the amount they get for the Saver’s Credit is $200 (10% x $2,000).

Captain Case Study
In helping a single mother with comprehensive financial planning, I realized her tax preparer (whom she paid over $300 to do her taxes) missed a great opportunity for her for the 2019 tax year.
Her AGI for the year was about $30,500 and she filed as Head of Household. She is over age 59.5 and made no contributions to any retirement accounts. She had a sufficient emergency fund and no high-interest debt (anything with interest rates over 4%). With a simple $2,000 contribution to a Traditional IRA, she could lower her AGI to about $28,500, which would allow her to get a $1,000 tax credit (50% x $2,000), which is precisely what we did. We set up a Traditional IRA with Charles Schwab, had her contribute $2,000 to it, then amended her tax return with a 1040-X reflecting the change and the newly acquired Saver’s Credit. All of which I helped with for free.

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