The Saver's Credit, also known as the Retirement Savings Contribution Credit, is one of the most appetizing rewards for low- to middle-income taxpayers who are thinking about stashing money away in a Roth IRA.
If you qualify, this IRS perk allows you to claim a credit up to $1,000 (single filers) or $2,000 (married couples filing jointly). This is a valuable addition to your tax return, allowing you to reduce or completely eliminate your tax bill. It goes without saying that if you reduce your tax tab, you get to keep more money in your pockets.
Unfortunately, most people who fit the bill for this credit don't even take advantage of it. Let's break down the qualifications and how this credit can make Roth IRA contributions a bit more exciting.
Get extra credit for saving
Saving toward retirement has never felt better. Every dollar you save in a Roth IRA could help you unlock a special surprise during tax time. The Saver's Credit is a chance for taxpayers on the lower end of the tax rate scale to make the tax code work in their favor by claiming a 50%, 20%, or 10% credit for contributions made to a qualified retirement account.
Keep in mind that the Saver's Credit is nonrefundable, which means it allows you to reduce your tax bill to zero, but not beyond that. You won't get a tax refund but you could potentially wipe away your tax bill. Credits give you a dollar-for-dollar reduction on the taxes you owe so it's something worth looking into.
The concept of claiming a tax credit by saving for retirement is fairly simple. But the Saver's Credit calculation table can be a bit mind-boggling if tax calculations are foreign to you. I'll break that down later. The most important piece of the equation is saving for retirement -- even if you don't qualify for the Saver's Credit. For 2021, each person under 50 can typically contribute up to $6,000 to a Roth IRA.
Determine if you qualify
Here's the moment you've been waiting for: the eligibility test. If you answer no to the following questions and have made contributions to your Roth IRA during the year you file your tax return, you've passed the first round of eligibility.
- Are you under 18?
- Are you a full-time student?
- Will you be claimed as a dependent on someone else's return?
Now, it's time for the income test. Your credit phases out when you surpass certain income levels. But if your adjusted gross income exceeds the thresholds below, you've missed your shot at the Saver's Credit for 2021:
- $66,000 for married couples filing jointly
- $49,500 for the head of households
- $33,000 for all other filings statuses
Calculate your credit
Let's say you are married and earn $39,000 in 2021. Your spouse was unemployed and did not have any money coming in. If you contribute $4,000 to a Roth IRA, your income and married filing jointly tax status would qualify you for a credit of 50% of your contribution. That means your total credit would be $2,000 on your 2021 tax return.
The below table shows the income ranges for the 50%, 20%, and 10% credit for each filing status.
2021 Saver's Credit rate and AGI eligibility by filing status
Married Filing Jointly AGI
Head of Household AGI
All Other Filers AGI
50% of your contribution
$0 to $39,500
$0 to $29,625
$0 to $19,750
20% of your contribution
$39,501 to $43,000
$29,626 to $32,250
$19,751 to $21,500
10% of your contribution
$43,001 to $66,000
$32,251 to $49,500
$21,501 to $33,000
Don't miss out on Roth IRA benefits
Even if you don't qualify for the Saver's Credit, contributing to a Roth IRA is still a good idea. You could have thousands of dollars or even a million-dollar jackpot waiting for you when you retire.
The Roth IRA allows you to contribute money you've already paid taxes on to fund the account. Then, you select assets of your choice and watch your investments grow tax-free. The power of compounding over decades can leave you with a healthy nest egg and you won't have to give the IRS a dime of your money after you've reached age 59 1/2.
When you tack on the Saver's credit, the rewards are even sweeter. If a married couple earns a $2,000 annual credit and contributes a total of $120,000 over two decades, that equals $40,000 worth of credits and tax savings. That's effectively like a couple contributing $80,000 to their retirement accounts and getting a big match from the government.