Saver's Credit: A Retirement Tax Break for the Middle Class
Your retirement contributions could be the key to a lower tax bill.
Saving for retirement is even more rewarding if your earnings are low enough to qualify for the Saver's Tax Credit. For 2020, single filers with adjusted gross income of $32,500 or less may be eligible. Taxpayers married filing jointly must have an AGI of $65,000 or less. (For 2019, the thresholds are $32,000 and $64,000, respectively.)
Fall within the income limits and you can claim a tax credit worth up to $1,000 for singles or $2,000 for joint filers. The credit is based on 10%, 20% or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts, including 401(k)s, traditional IRAs and Roths. The lower your income, the higher the percentage you get back via the credit.
People with disabilities who have an ABLE account can also take advantage of the Saver's Credit. Contributions to these accounts qualify for the credit, so long as they're from the designated beneficiary.
Some people can’t claim the Saver’s Credit, regardless of income. Taxpayers under 18, full-time students and those claimed as dependents aren’t eligible. But if you do qualify, every dollar you claim is one dollar less you have to pay in taxes.
To claim the credit, you'll need to complete Form 8880 and submit it with your tax return. For more tax breaks for ordinary Americans, check out 10 Tax Breaks for the Middle Class.
