It is definitely no secret that saving for retirement is important. It is so important that the government even offers a tax credit for those that choose to save for the future. Worth up to $1,000 for an individual tax-payer, or $2,000 if filing jointly, many independent adults can qualify for the saver’s credit.
Who is Eligible for the Saver’s Credit?
To receive this credit, you must be 18 years old, not enrolled in school full-time, and not be claimed as a dependent. You also must make a contribution to an IRA or other eligible retirement plan and fall within specific income thresholds.
As far as your contributions go, you can only claim contributions of new money. Any money that was a rollover from an existing account does not count towards your eligible contributions.
Your income must be underneath the following thresholds to get the credit:
- Head of Household: $48,750 in 2020; $49,500 in 2021
- Married, Filing Jointly: $65,000 in 2020; $66,000 in 2021
- Other Filing Statuses: $32,500 in 2020; $33,000 in 2021
How Your Saver’s Credit Value is Determined
Those that qualify for the saver’s credit can receive up to $1,000 ($2,000 for married couples that file jointly). The value of your credit is based upon how much you contributed to your 401(k), Roth IRA, SARSEP, SIMPLE IRA, 403(b), or 457(b) plan. You may be eligible for 10%, 20%, or 50% of the maximum contribution amount, depending on your adjusted gross income and your filing status.
Saver’s Credit Rates
Married Filing Jointly
- 50% of contribution: $39,000 or less in 2020; $39,500 or less in 2021
- 20% of contribution: $39,001 – $42,500 in 2020; $39,501 – $43,000 in 2021
- 10% of contribution: $42,501 – $65,000 in 2020; $43,001-$66,000 in 2021
Head of Household
- 50% of contribution: $29,250 or less in 2020; $29,625 or less in 2021
- 20% of contribution: $29,250 – $31,875 in 2020; $29,626 – $32,250 in 2021
- 10% of contribution: $31,876 – $48,750 in 2020; $32,251 – $49,500 in 2021
Other Filers
- 50% of contribution: $19,500 or less in 2020; $19,750 or less in 2021
- 20% of contribution: $19,501 – $21,250 in 2020; $19,751 – $21,500 in 2021
- 10% of contribution: $21,251 – $32,500 in 2020; $21,501 – $33,000 in 2021
With many credits, the math to figure out how much you are getting can be a bit tricky, but not with this one. Based on your income, your credit is worth 10%, 20%, or 50% of a cap on the amount contributed of $2,000 for an individual filer, or $4,000 for married couples who are filing together. If you are a single filer with an income of $18,000 and you contributed $1,000 to your Roth IRA, your saver’s credit would be $500.