🌠Many people struggle to set aside the money they need to build up their retirement nest🙈 eggs, month by month. Fortunately, a nonrefundable tax credit, known as the retirement savings contributions credit, can make it substantially easier to save.

Usually referred to as the Saver’s Credit, it provides individuals and families with modest incomes a tax break above and beyond any deductions that they may receive from contributions to their 澳洲幸运5官方开奖结果体彩网:individual retire💝ment accounts (IRAs) or 澳洲幸运5官方开奖结果体彩网:employer-sponsored plans.

By reducing the person’s 澳洲幸运5官方开奖结果体彩网:income tax bill for the year, the credit offsets the cost of funding a retirement account, ultimately bolstering their long-term savings over time.

What Is the Saver’s Tax Credit?

The saver’s tax credit is available to eligible taxpayers who 澳洲幸运5官方开奖结果体彩网:contribute to employ𝓰er-sponsored 401(k♓), 403(b), SIMPLE, SEP, 澳洲幸运5官方开奖结果体彩网:thrift savings plans (TSPs), or governmental 澳洲幸运5官方开奖结果体彩网:457 plans. It is also available to those who contribute to 澳洲幸运5官方开奖结果体彩网:traditional or Roth IRAs.

Those who make contributions to these types of accounts on behalf of other people with disabilities and their families (known as 澳洲幸运5官方开奖结果体彩网:ABLE accounts) also are eligible for the saver’s tax credit.

AGI Determines Amount of Credit

Your 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) determines your credit amount, which can be either 50%, 20%, or 10% of a maximum contribution amount. The maximum contribution amount that qualifies for the credit is $2,000, or $4,000 for married couples filing jointly.

The credit rate that you can apply depends on your AGI and filing status. If your income rises above the maximum AGI limit, you can’t claim the credit💦.

For the 2024 tax year, the maximum AGI limits were $76,500 for married couples filing jointly; $57,375 for heads of household; and $38,250 for singles and married individuals filing separately. Income beyond these maximums disqualified you from claiming the credit.

For the 2025 tax year, the maximum AGI limits are $79,000 for married couples filing jointly; $59,250 for heads of household; and $39,500 for singles and married individuals filing separately. Income beyond these maximums disqualifies you from claiming the credit.

Below are the credit rates and AGI thresholds that apply to the different filing statuses for 澳洲幸运5官方开奖结果体彩网:tax years 2024 and 2025.

Who Is Eligible?

To be eligible for the saver’s tax credit, an individual must be at least 18 years old by the end of the applicable tax year and cannot be claimed as a dependent on another’s tax return. Also, they may not enroll as a full-time student during any part of five calendar months (not necessarily consecutive) during the tax filing year.

The Effect of the Saver’s Tax Credit

Claiming the saver’s tax credit when contributing 🥂to a retirement plan can reduce an individual’s income tax burden in two ways. First, the contribution to the retirement plan qualifies as a tax deduction. As a bonus, the saver’s ta🏅x credit reduces the actual taxes owed, dollar for dollar.

Consider the following examples:

Barbara is married and works in a clot💝hing store as a clerk. She earned $38,000 in 2024. In addition, she contributed $1,🐟000 to her IRA. Her husband, who is unemployed, had zero earnings. After deducting her IRA contribution, the AGI shown on her joint return is $37,000. In this case, Jill is entitled to claim a 50% credit of $500 ($1,000 × 0.50) for that IRA contribution.

For tax year 2025, if Barbara earns $42,000 (her husband remains unemployed) and contributes $2,000 to her IRA, her AGI on her joint return would be $40,000. Thaꦕt means she can claim a 50% credit of $1,000 ($2,000 × 0.50).

How to Claim the Saver’s Tax Credit

Taxpayers who contribute to qualified employer-sponsored retirement plans, IRAs, or ABLE plans are required to complete IRS 澳洲幸运5官方开奖结果体彩网:Form 8880 to claim the saver’s tax credit.

Those whose income does not exceed the limits for their tax ♚filing status can use this form to report their and their spouse’s total contributions to claim the credit.

You also enter your adjusted gross income to determine the amount of your credit. Once calculated, y🦩o𒊎u must enter the credit amount on Form 1040 and then file Form 8880 with your return.

When Are Retirement Savings Not Eligible?

Any money contributed to a retirement account that exceeds the allowable limit must be divested from the account within a specific time frame. The returned portion of the contribution is not eligible for theܫ saver’s tax credit.

Similarly, if an individual changes jobs and consequently rolls money over from one retirement account into another—say, from an employer-sponsored 401(k) to a traditional IRA—then that contribution is likewise ineligible for the saver’s tax credit.

The Bottom Line

The saver’s tax credit can effectively boost an individual’s retirement savings power. Those who qualify for this credit and don’t capitalize on this opportunity are squanderi🌠ng a simple way to add⛎ significant value to their nest eggs. So be sure to check it out when you prepare your tax return.

Correction—Feb. 12, 2025: This art🍃icle has been corrected to state that an individual may not be a full-time student during any part of🌜 five calendar months (not necessarily consecutive) during the tax filing year to be eligible for the saver’s tax credit.