3648 / What is the saver’s credit and who can claim it?

The saver’s credit (formally known as the retirement savings contributions credit) permits certain lower-income taxpayers to claim a nonrefundable credit for qualified retirement savings contributions.¹ Qualified retirement savings contributions include contributions to Roth or traditional IRAs, as well as elective deferrals to a 401(k) plan ( Q 3752), an IRC Section 403(b) tax sheltered annuity ( Q 4030), an eligible Section 457 governmental plan ( Q 3584), a SIMPLE IRA ( Q 3706), and a salary reduction SEP ( Q 3705). Voluntary after-tax contributions to a qualified plan or Section 403(b) tax sheltered annuity are also eligible for the credit.² The fact that contributions are made pursuant to a negative election (i.e., automatic enrollment) will not preclude a participant from claiming the saver’s credit.³ Contributions made to an IRA that are withdrawn, together with the net income attributable to such contribution, on or before the due date (including extensions of time) for filing the federal income tax return of the contributing individual are not considered eligible contributions.⁴

To prevent churning (simply switching existing retirement funds from one account to another to qualify for the credit), the total of qualified retirement savings contributions is reduced by certain distributions received by the taxpayer during the prior two taxable years and the current taxable year for which the credit is claimed, including the period up to the due date (plus extensions) for filing the federal income tax return for the current taxable year. Distributions received by the taxpayer’s spouse during the same time period are also counted if the taxpayer and spouse filed jointly both for the year during which a distribution was made and the year for which the credit is taken.⁵

Corrective distributions of excess contributions and excess aggregate contributions
( Q 3808), excess deferrals ( Q 3760), dividends paid on employer securities under Section 404(k) ( Q 3824), and loans treated as distributions ( Q 3949) are not taken into account.⁶

To be eligible to claim the credit, the taxpayer must be at least 18 as of the end of the tax year, cannot be claimed as a dependent on someone else’s tax return, and cannot be a full-time student. Full-time students include any individual who is enrolled in school during some part of each of five months during the year and is enrolled for the number of hours or courses the school considers to be full-time.⁷

The amount of the credit is limited to an applicable percentage of IRA contributions and elective deferrals up to $2,000.

The applicable percentages for 2025 are as follows:

ADJUSTED GROSS INCOME
Joint return		Head of a household		All other cases		Applicable
Over	Not over	Over	Not over	Over	Not over	Percentage
0	$47,500	0	$35,625	0	$23,750	50%
47,500	51,000	35,625	38,250	23,750	25,500	20%
51,000	79,000	38,250	59,250	25,500	39,500	10%
79,000		59,250		39,500		0%

The applicable percentages for 2024 are as follows:⁸

ADJUSTED GROSS INCOME
Joint return		Head of a household		All other cases		Applicable
Over	Not over	Over	Not over	Over	Not over	Percentage
0	$46,000	0	$34,500	0	$23,000	50%
46,000	50,000	34,500	37,500	23,000	25,000	20%
50,000	76,500	37,500	57,375	25,000	38,250	10%
76,500		57,375		38,250		0%

The income limits are indexed for inflation. For this purpose, adjusted gross income is calculated without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions.9

Taxpayers have until their tax filing deadline to contribute to traditional and Roth IRAs and still claim the credit on the prior year’s tax return.

The maximum credit that can be claimed is $1,000, or $2,000 for married taxpayers filing jointly. For married couples, contributions by or for either or both spouses may give rise to the credit.10

Example: Susan, who is married, earned $41,000 in 2022. Her husband did not have any earnings. During 2022, Susan contributed $1,200 to her IRA, which she deducted on her tax return, which reduced her adjusted gross income to $39,800. Susan is eligible to claim a 50 percent saver’s credit, or $600.