How to Claim the Saver’s Credit

Low- and moderate-income workers who save for retirement in a 401(k) plan or individual retirement account could qualify for the saver’s credit. This retirement savings contributions credit can be claimed in addition to any tax deduction you earn by contributing to a traditional retirement account.

a man sitting at a table with wine glasses: Mature couple doing some paperwork and calculations at home

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Mature couple doing some paperwork and calculations at home

Here’s how to qualify for the saver’s credit on your 2021 tax return:

Check the saver’s credit income requirements.
Save in a qualifying retirement account, such as a 401(k) or IRA.
Contribute enough for the full credit.
Meet the saver’s credit contribution deadline.

Find out if you are eligible for the saver’s credit and what you need to do to claim the saver’s credit in 2021.

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Check the Saver’s Credit Income Requirements

Individuals with an adjusted gross income of up to $33,000 in 2021 could qualify for the saver’s credit if they contribute to a retirement account. “Many workers who did not meet the saver’s credit’s income eligibility limits in recent years may now be eligible, because their annual income has dropped as a result of unemployment, furloughs and/or reductions in pay,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies.

Heads of household have a higher saver’s credit income threshold of $49,500 in 2021. Married couples can earn as much as $66,000 in 2021 and remain eligible for the saver’s credit.

Contribute to a Saver’s Credit Qualifying Retirement Account

There are several types of retirement accounts that might qualify you for the saver’s credit. Contributing to a 401(k) plan will often allow you to claim the saver’s credit. Other types of eligible workplace retirement accounts include 403(b) plans for employees of public schools, 457 plans for state or local government employees, SEP or SIMPLE plans, which are sometimes used by smaller employers, and the federal government’s Thrift Savings Plan.

But you don’t necessarily need a workplace retirement account to qualify for the credit. Contributions to a traditional IRA, Roth IRA or ABLE account of which you are the designated beneficiary could also make you eligible for the saver’s credit.

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Save Enough to Qualify for the Full Saver’s Credit

The saver’s credit can be claimed on retirement account contributions of up to $2,000 for individuals and $4,000 for couples. However, distributions from your retirement account might reduce the amount that is used to calculate the credit.

Meet the Saver’s Credit Contribution Deadline

Contributions to 401(k) plans and similar types of workplace retirement accounts that might qualify for the saver’s credit are typically due by the end of the calendar year. However, you have until the due date of your tax return in April to make an IRA contribution that counts toward the saver’s credit. So retirement savers have until April 18, 2022, to make a traditional IRA or Roth IRA contribution that makes them eligible for the saver’s credit on their 2021 tax return.

Don’t Expect a Large Saver’s Credit

The saver’s credit could reduce the income tax you owe or boost your refund. “The saver’s credit is better than a deduction,” says Mark Steber, chief tax information officer for Jackson Hewitt Tax Service. “It’s reduced tax liability or money back on your tax return.”

The maximum possible credit is $1,000 for an individual or $2,000 for a married couple. However, most people receive smaller credits. The average credit amount for tax filers in 2018 was $187, a Transamerica Center for Retirement Studies analysis of IRS data found. According to a statement from the IRS, “It is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.”

Most workers don’t know about the tax savings they could be eligible for by claiming the saver’s credit. Some 43% of workers say they are aware of the saver’s credit, according to a 2020 Transamerica online survey of 5,277 workers at for-profit companies. Millennials (49%) are more likely to know about the saver’s credit than members of Generation X (40%) or baby boomers (34%), the survey found.

Dependents and Students Are Not Eligible for the Saver’s Credit

People who are under age 18 or claimed as a dependent on someone else’s tax return are not eligible for the saver’s credit. Those who are enrolled as a full-time student for five or more months during the calendar year cannot take the credit either, including students at technical, trade and mechanical schools. However, taking online courses or participating in on-the-job training will not prevent you from claiming the saver’s credit.

Calculate Your Saver’s Credit

The saver’s credit is worth 10%, 20% or 50% of your retirement account contributions, with employees with the lowest income getting the biggest credit. Retirement savers with an adjusted gross income of $19,750 or less ($39,500 for couples) in 2021 are eligible for a saver’s credit equivalent to half of their retirement account contributions. Workers earning slightly more than those income cutoffs are eligible for a 20% saver’s credit. And investors earning between $21,500 and $33,000 ($43,000 to $66,000 for couples) could get a saver’s credit worth 10% of their 401(k) or IRA deposit. The saver’s credit can be claimed in addition to the tax deduction for saving in a traditional retirement account.

“There are only a limited number of instances in the tax law that let you double time,” says Barbara Weltman, an attorney and author of “J.K. Lasser’s 1001 Deductions and Tax Breaks 2021.” “You are getting the deduction for the IRA contribution, and you may get a tax credit as well.”