If you make contributions to your individual retirement account (IRA) or employer-sponsored retirement plan, you may be eligible to receive a tax credit (also known as the "Saver’s Credit").
You are eligible for the Saver’s Credit if you meet all three of the following requirements:
You are 18 years of age or older;
You are not claimed as a dependent on another person’s tax return; AND
You are not a student.
You are considered a student for eligibility purposes if: (a) you were enrolled as a full-time student at a school for 5 calendar months of the tax year; or (b) you too a full-time, on-farm training course given by a school or a state, county, or local government agency for 5 calendar months of the tax year.
The amount of the credit depends on your adjusted gross income (AGI), and will either be 50%, 20%, or 10% of your qualified contributions. Qualified contributions include:
Contributions you make to a traditional or Roth IRA;
Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan;
Voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan;
Contributions to a 501(c)(18)(D) plan; or
Contributions made to an ABLE account for which you are the designated beneficiary (beginning in 2018).
2020 Saver's Tax Credit Limits
Married Filing Jointly
50% of qualified contributions if AGI is equal to or less than $39,000
20% of qualified contributions if AGI is between $39,001 and $42,500
10% if qualified contributions if AGI is between $42,501 and $65,000
No credit if AGI is greater than $65,000
Head of Household
50% of qualified contributions if AGI is equal to or less than $29,250
20% of qualified contributions if AGI is between $29,251 and $31,875
10% if qualified contributions if AGI is between $31,876 and $48,750
No credit if AGI is greater than $48,750
All Other Filers
50% of qualified contributions if AGI is equal to or less than $19,500
20% of qualified contributions if AGI is between $19.501 and $21,250
10% if qualified contributions if AGI is between $21,251 and $32,500
No credit if AGI is greater than $32,500
Example: Jill, who works at a retail store, is married and earned $41,000 in 2020. Jill’s spouse was unemployed in 2020 and did not have any earnings. Jill contributed $2,000 to her IRA for 2020. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $39,000. Jill may claim a $1,000 tax credit (50% of her $2,000 IRA contribution) on her 2020 tax return.
For more information, see IRS Form 880 (Credit for Qualified Retirement Savings Contributions).
About the Author
Attorney Jordan D. Howlette is the President of MyTaxRights, LLC and the managing-member of JD Howlette Law, LLC, a civil litigation firm that represents individuals and businesses involved in tax disputes with the IRS, the United States Department of Justice (DOJ), and various state departments of revenue. A former trial attorney with the DOJ’s Tax Division, Jordan leverages his extensive background in tax litigation to educate others about their federal tax rights and responsibilities. Each tax season, Jordan also volunteers as a tax coach with the Center for the Advancement of Tax Equity, where he teaches others how to self-prepare and file their taxes through the non-profit's free tax clinics.