Retirement Saver's Credit for 2022

How Saving for Retirement Can Reduce Your Taxes With a Credit

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Saving for retirement can be a major challenge when you're paying off debt or building up savings for short-term goals or emergency reserves. Fortunately, the IRS gets that. It provides an incentive, a special tax credit that's designed specifically for low- and moderate-income taxpayers. 

The Saver's Credit, formerly known as the Retirement Savings Contributions Credit, provides these taxpayers with a special tax break. They can claim the credit for a portion of the income they contribute to a qualifying retirement plan. 

Key Takeaways

  • The Retirement Savings Contributions Credit is designed for low- and moderate-income taxpayers. 
  • The tax credit is 50%, 20%, or 10% of your retirement contributions for the year. The percentage depends on your adjusted gross income.
  • File IRS Form 8880, "Credit for Qualified Retirement Savings Contributions," to take advantage of the Saver's Credit.

Tax Credits vs. Tax Deductions 

A tax credit is a dollar-for-dollar reduction of your gross tax liability—the total amount of taxes you're responsible for paying as you finish your tax return. You might owe the IRS $3,000, then you go back and claim a $1,000 credit. Now you only owe $2,000.

The Saver's Credit is non-refundable, which means that it can reduce your income tax liability, but the IRS won't be sending you a check for any balance that might be left over. This is nonetheless better than a tax deduction, which only reduces your taxable income. 

Are You Eligible for the Saver's Credit?

You must be at least 18 years old to qualify for the Saver’s Credit. You can't be a full-time student, and you can't be claimed as a dependent on another person’s tax return.

You must make eligible contributions to your IRA or employer-sponsored retirement plan for the tax year in which you're claiming the credit.

How Much Can the Credit Cut Your Tax Bill?

The tax credit is 50%, 20%, or 10% of your retirement plan or IRA contributions for the year. How much of a percentage you can claim depends on your adjusted gross income (AGI). The Saver's Credit is most beneficial for taxpayers with low incomes.

The maximum credit amount is $1,000 as of 2022, or $2,000 if you're married and filing a joint return. It's 50% of $2,000 in contributions, or $4,000 in contributions.

Your AGI must be less than $34,000 in 2022 (up from $33,000 in 2021) to qualify for the credit if your filing status is single or married filing separately. Head of household filers are limited to AGIs below $51,000 in 2022 ($49,500 in 2021). Married couples filing jointly are eligible with AGIs of less than $68,000 in 2022 ($66,000 in 2021).  

The 2022 Saver's Credit 

The first column defines how much of your contribution you can claim, followed by the income parameters for each percentage for the different filing statuses. The single status includes those who are married and filing separately, as well as qualifying widow(er)s.     

  Married Filing Jointly Head of Household All Other Filers
50% of your contributions $41,000 or less Less than $30,750 $20,500 or less
20% of your contribution $41,001 - $44,000 $30,751 - $33,000 $20,501 - $22.000
10% of your contribution $44,001 - $68,000 $33,001 - $51,000 $22,001 - $34,000
No credit available More than $68,000 More than $51,000 More than $34,000

An Example

You're a married taxpayer filing a joint tax return with gross income of $39,000. Your spouse has no earned income during 2022.

Your credit would be limited to 20%, or just $400, if you earned $41,001. It would drop to 10% of your $2,000 contribution or just $200 if your AGI was $60,000. You would not be eligible to claim the credit at all if you earned $68,001 or more.

You would like to save money for retirement, so you decide to contribute $2,000 to a Roth IRA to take advantage of the potential tax-free growth of earnings. You can claim a 50% credit, or $1,000, for your $2,000 contribution.

Contributions for the 2021 Tax Year

  Married Filing Jointly Head of Household All Other Filers
50% of your contributions $39,500 or less $29,625 or less $19,750 or less
20% of your contribution $39,501 - $43,000 $29,626 - $32,250 $19,751 - $21,500
10% of your contribution $43,001 - $66,000 $32,251 - $49,500 $21,501 - $33,000
No credit available More than $66,000 More than $49,500 More than $33,000

Contributions thresholds for 2021 are lower than for 2022. IRA contributions for 2021 can be made through April 15, 2022.

Contributions for the 2020 Tax Year

  Married Filing Jointly Head of Household All Other Filers
50% of your contributions $39,000 or less Less than $29,250 $19,500 or less
20% of your contributions $39,001 - $42,500 $29,250 - $31,875 $19,501 - $21,250
10% of your contributions $42,501 - $65,000 $31,876 - $48,750 $21,251 - $32,500
No credit available More than $65,000 More than $48,750 More than $32,500

The income thresholds for the credit percentages are indexed for inflation. They can increase annually. Different figures apply if you want to go back further and claim the credit for the 2019 tax year. 

Eligible Retirement Accounts

The Saver's Credit can be claimed when you make contributions to certain types of retirement accounts:

  • Traditional or Roth IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Thrift Savings Plans (TSP)
  • SIMPLE IRAs
  • Simplified Employee Pension (SEP) plans
  • Section 501(c)(18) plans

Contributions aren't eligible for the Saver's Credit if you completed a rollover from a qualified plan or an IRA.

Your eligible contributions would be reduced by the amount received if you took any distributions from a retirement plan or IRA. 

How to Claim the Saver's Credit

File IRS Form 8880, "Credit for Qualified Retirement Savings Contributions," to take advantage of the Saver's Credit. You must use the Form 1040 tax return or Form 1040NR. The 1040 replaces Forms 1040-EZ and 1040-A effective 2018. These tax forms are no longer available.