Savers Tax Credit and Retirements Savings Contributions

Bees save honey -- you need to save the money with the savers tax credit

The savers tax credit gives you a tax credit on your tax return just for making a  401(k), IRA, or other retirement plan contribution.

If you make Roth contributions and are under the agi limitations, this gives you both a tax credit and tax free earnings in the same tax year.

If you make traditional contributions and are under the agi limitations, this gives you both a tax deduction and a tax credit in the same tax year.

Read on to see if you’re eligible.

Subtract up to $2,000 ($4,000 if married filing jointly)

from taxes owed just for making a retirement contribution!

Find Your AGI

Savers tax credit eligibility is based on your adjusted gross income (this opens a new tab at the IRS's website where “agi” is explained in detail).

For a quick agi calculation, take your projected gross income for the year and subtract any deductible traditional IRA or company sponsored retirement plan contributions you plan to make (or have made). You can find your agi for last year at the bottom of the first page of your US tax return.

2017

*single

married filing jointly

head of household

tax credit rate

agi not more than $18,500

$18,501-$20,000

$20,001-$31,000

more than $31,000

agi not more than $37,000

$37,001-$40,000

$40,001-$62,000

more than $62,000

agi not more than $27,750

$27,751-$30,000

$30,001-$46,500

more than $46,500

50% of contribution

20%

10%

0%

* includes married filing separately and qualifying widower filers


2016

*single

married filing jointly

head of household

tax credit rate

agi not more than $18,500

$18,501-$20,000

$20,001-$30,750

more than $30,750

agi not more than $37,000

$37,001-$40,000

$40,001-$61,500

more than $61,500

agi not more than $27,750

$27,750-$30,000

$30,001-$46,125

more than $46,125

50% of contribution

20%

10%

0%

How to calculate your credit

To calculate your credit, multiply the appropriate percentage (50%, 20%, or 10%) by your contribution amount. The maximum allowable credit is $2,000 for single filers and $4,000 if married filing jointly.

Example 1: In 2015, Clayton is a single filer with an agi of $15,500. He contributed a total of $4,500 to his Roth 401(k) at work during the calendar year. He'll receive the maximum tax credit of $2,000 (4,500*.50 = $2,225) allowable for a single filer on his 2014 tax return.

Example 2: Emily is married. Her and hubby have an agi of $52,500 and they each made $1,500 of contributions to their respective Roth IRAs in 2014. Their tax credit will be $300 ($3,000 *.10 = $300) on their 2015 joint tax return.

Who's ineligible for the savers tax credit?

  • You’re Under 18 - You have to turn 18 by December 31st in the calendar year for which the contribution was made.
  • Claimed as a Dependent on Someone's Tax Return
  • You're a Student - That means you were going to school in any part of 5 months or more out of the year, and besides college could be for “… technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, or schools offering courses only through the Internet.” (from Instructions on IRS form 8880)

Savers Tax Credit = Tax Credit + Tax Free Earnings or Tax Deduction

The savers tax credit makes a great deal even better. Combining tax free earnings (Roth contributions) or a tax deduction (traditional contributions) along with a tax credit in the same tax year is an unbeatable savings combination.

If you are a lower wage earner, or your income is down because of a layoff, illness, or cutback, don’t forget about this very valuable credit!