The saver’s credit is a government incentive designed to encourage consumers to put away funds for their retirement at a time when almost half of all American households age 55 and older have saved nothing for retirement. The tax break, which the IRS refers to as the retirement savings contribution credit, is geared to low- to moderate-income citizens.

The two terms – saver’s tax credit and retirement savings contribution credit – are synonymous with each other, and are often used interchangeably.

While it provides a tax credit to those who contribute to their qualified retirement accounts and earn under a certain amount, many taxpayers aren’t familiar with the benefit. In fact, more than half  of U.S. workers have no clue the benefit exists, according to a 2023 survey from Transamerica Center for Retirement Studies.

Here’s everything you need to know about the saver’s credit.

What is the saver’s tax credit?

The saver’s credit is a tax credit you can claim on your tax return if you are eligible. Depending on your income level, you may be able to claim the credit for up to 50 percent of eligible retirement contributions that you make toward your IRAs or employer-sponsored retirement plans — up to $2,000 per year for a single person.

Though the income tax credit has been available for over two decades, it’s still not a well-known benefit.

“The saver’s credit is an often-overlooked tax credit that can significantly reduce your tax bill while you save for retirement,” says Debbie Todd, CPA, and CEO of iCompass Compliance Solutions.

Eligible taxpayers can claim the credit in addition to the tax deduction for contributing to a tax-advantaged retirement plan, like a 401(k).

The credit can increase a taxpayer’s refund or reduce the tax owed, but it’s affected by other deductions and credits, according to the IRS.

Who can qualify for the retirement savings contribution credit?

To file for the saver’s credit, you need to satisfy three requirements set forth by the IRS:

  • You need to be at least 18 years old;
  • You cannot be enrolled as a full-time student; and
  • You cannot be claimed as a dependent on someone else’s tax return.

Which retirement contributions qualify for the tax credit?

The saver’s credit is available to eligible taxpayers who contribute to:

  • 401(k)
  • Traditional IRA
  • Roth IRA
  • 403(b)
  • Thrift Savings Plan
  • 501(c)(18)
  • SARSEP or governmental 457(b) plans
  • ABLE account (if you’re the designated beneficiary)

Be careful when making contributions, as not all are eligible for the tax credit. Taxpayers cannot claim the amounts their employers contributed on their behalf, Todd says.

Also, any money contributed to a retirement account above the allowable limit, in addition to being subjected to penalties, is ineligible for the saver’s tax credit.

If someone were to change jobs and roll over a 401(k) into another retirement plan, the rollover wouldn’t be eligible for the saver’s credit either.

What is the income limit for the tax credit?

Your income level will determine how much your credit rate is. Determining how much you can save will help in deciding whether or not the tax credit is right for you.

Here’s a look at the IRS’ income guidelines for the 2023 tax year (for filing taxes in 2024) :

Credit rate Married and filing jointly Files as head of household Single and married filing separately
50% $43,500 or less in adjusted gross income (AGI) $32,625 or less in adjusted gross income (AGI) $21,750  or less in adjusted gross income (AGI)
20% $43,501 – $47,500  in AGI $32,626 – $35,625 in AGI $21,751 – $23,750 in AGI
10% $47,501 – $73,000  in AGI $35,626 – $54,750  in AGI $23,751 – $36,500  in AGI
0% $73,000+ in AGI $54,750+ in AGI $36,500+ in AGI

In the 2024 tax year (for filing taxes in 2025), the saver’s credit phases out at $76,500 for married couples filing jointly, $57,375 for heads of household and $38,250 for singles and married individuals filing separately.

What is the saver’s tax credit worth?

The saver’s credit applies to qualifying contributions. A single person can make up to a $2,000 contribution and a married couple filing jointly can make up to $4,000 in eligible contributions. The amount of the credit is 50 percent, 20 percent or 10 percent of that contribution to your retirement plan or your contributions to an IRA or ABLE account. The exact amount depends on the adjusted gross income of those filing.

Because the maximum credit is 50 percent, the most individual taxpayers can receive is $1,000. Married couples filing jointly may be able to get a maximum credit of up to $2,000 on a joint tax return.

How to calculate the value of the saver’s credit

To better understand how the retirement savings contribution credit works, consider the below example:

Annie, whose tax-filing status is single, has an adjusted gross income of $20,000 for tax year 2023. She contributes $800 to her employer-sponsored 401(k) plan, plus $600 to her traditional IRA. Annie is therefore eligible for a tax credit of $700. This is because she had $1,400 in qualifying contributions ($800 + $600), and her adjusted gross income allowed for a 50 percent credit.

Now to consider a married couple:

Jason and Bridgette are married filing jointly for the 2023 tax year. Jason contributes $2,000 to his IRA, and Bridgette contributes $1,000 to her 403(b) plan. Their adjusted gross income is $40,000. They would be eligible to claim a $1,500 saver’s credit ($2,000 + $1,000 = $3,000, of which 50 percent is $1,500).

Now, if Jason and Bridgette’s adjusted gross income equaled $50,000 and they made the same contributions, their saver’s credit would be $300 ($2,000 + $1,000 = $3,000, of which 10 percent is $300).

Bottom line

The saver’s credit is a valuable government incentive to help motivate people with more modest incomes to invest money for retirement. If you have questions about your specific tax situation and whether you qualify for the saver’s credit, speak with a tax professional for individual advice.

Note: Bankrate’s Georgina Tzanetos contributed to an update of this story.