(NewsNation) — Millions of Americans can get a tax break if they contribute to a retirement account, but many don’t take advantage of it.
The Retirement Savings Contributions Credit, or “Saver’s Credit,” is a tax benefit for low- to moderate-income taxpayers who contribute to a retirement plan like a 401(k) or individual retirement account (IRA).
It’s worth up to $1,000 for single filers and up to $2,000 for those who are married filing jointly, depending on how much they make and contribute to their retirement account.
But the saver’s credit is “a well-kept secret,” Catherine Collinson, CEO and president of Transamerica Center for Retirement Studies (TCRS), said in a recent report.
A recent TCRS survey found that just over half (51%) of U.S. workers know about the credit. That percentage is even lower (44%) among those who could qualify for it: households that bring in less than $50,000.
According to the IRS, only 5.8% of tax returns claimed the Saver’s Credit in 2022.
Here’s what to know about the Saver’s Credit and how much you could save.
What is the Saver’s Credit?
The Saver’s Credit allows eligible taxpayers to claim a tax break for contributing to a retirement account like a 401(k) or IRA.
The credit can be worth up to $1,000 for single filers who contribute $2,000 to a qualifying retirement account. Married couples filing jointly can offset 50% of retirement contributions on as much as $4,000 — making the credit worth $2,000 to them.
It’s a tax credit, not a tax deduction, which means it lowers your tax bill dollar for dollar.
“A tax credit is the holy grail of tax benefits,” Mark Steber, chief tax information officer at Jackson Hewitt Tax Service, told NewsNation in a recent interview.
For example: With a $1,000 tax credit, your $2,000 tax bill would be lowered to $1,000, whereas a tax deduction lowers your taxable income, not your tax bill directly.
The downside is that the Saver’s Credit is nonrefundable, meaning it can reduce the tax you owe to zero, but it won’t provide you with a tax refund. That means those who don’t owe federal income tax don’t benefit.
Who qualifies for the Saver’s Credit?
The Saver’s Credit is meant to help those with modest incomes build their nest eggs, so not everyone qualifies.
To be eligible, your adjusted gross income (AGI) needs to fall within certain thresholds. Single filers must have an AGI under $38,250. Those who are married filing jointly can’t have an AGI above $76,500.
Of course, you’ll also have to contribute to a retirement account, such as any of the ones listed here.
Your AGI determines your credit amount, which can be either 50%, 20% or 10% of your retirement contribution. Those who make less can have more of their retirement contribution offset.
Here’s how the credit rates and income limits break down for tax year 2024 (taxes you file in 2025):
| Credit rate | Married filing jointly | Head of household | All other filers* |
|---|---|---|---|
| 50% of your contribution | AGI not more than $46,000 | AGI not more than $34,500 | AGI not more than $23,000 |
| 20% of your contribution | $46,001- $50,000 | $34,501 – $37,500 | $23,001 – $25,000 |
| 10% of your contribution | $50,001 – $76,500 | $37,501 – $57,375 | $25,001 – $38,250 |
| 0% of your contribution | more than $76,500 | more than $57,375 | more than $38,250 |
To qualify, you also have to be:
- Age 18 or older,
- Not claimed as a dependent on another person’s return, and
- Not a student
Find out if you qualify for the Saver’s Credit using the IRS tool here.
How much is the Saver’s Credit worth?
The size of the credit depends on your income and filing status, but it tops out at $1,000 for single filers and $2,000 for married couples filing jointly.
The math works like this: The maximum retirement contribution that can go toward the credit is $2,000 for a single filer and $4,000 for a married couple. So, at the top credit rate, 50%, those contributions would be worth $1,000 and $2,000, respectively.
Here are a couple of scenarios:
- A single filer with an adjusted gross income of $35,000 contributes $2,000 to an IRA. That person would be eligible for a 10% credit, offsetting their retirement contribution by $200.
- A married couple filing jointly with an adjusted gross income of $50,000 contributes $2,000 to an IRA. That couple would be eligible for a 20% credit, a tax benefit worth $400.
In 2022, the average amount of the Saver’s Credit was $194, according to TCRS.
Can I still contribute to a retirement account for 2024?
It’s not too late to contribute to an IRA for the 2024 tax year.
The IRS allows tax filers to put money in an IRA until April 15, 2025, and still get the tax break for 2024.
“It is one of the only — if not the only thing — you can do after year-end up until the tax due date to affect last year’s taxes,” Steber said.
Putting money into an IRA could make you eligible for the Saver’s Credit, but there are other tax benefits as well. For example, contributions to a traditional IRA can reduce your taxable income.
What is the Saver’s Match?
The Saver’s Credit is going away in 2027 and being replaced by a new program called the “Saver’s Match.”
Instead of receiving a credit, eligible individuals will have money contributed directly to their retirement account paid by the U.S. Treasury.
“The new match has the potential to benefit millions of low-income households, as even those who don’t pay federal income taxes will be able to claim the matching federal contribution to their retirement accounts,” the Bipartisan Policy Center noted in a recent report.
According to the IRS, a qualifying taxpayer who contributes $2,000 to a retirement account like an IRA can receive as much as $1,000, which is matched by the Treasury.
“Saver’s Match may create an incentive to save for some people that the Saver’s Credit does not reach,” the Congressional Research Service wrote in a 2023 report.