The Saver’s Credit: Free money for retirement

I talk about The Saver’s Credit, and how some people who might have assumed it wasn’t relevant to them might qualify now.

(Nothing in this post should be considered tax advice. Please see my Disclosure Policy.)

The pandemic probably changed your life in many ways, but one of the ways it might have changed your life is that your income situation is different.

You might have a different job, and you may have been unemployed for a time. Your income might be significantly less now than in the Before Times.

And if you have less income right now, you might not be thinking about retirement contributions right now.

But you’d be wise to think a little about it, because there’s a way for certain individuals to contribute money to their retirement accounts and get some of it back.

Up to $1,000, in fact.

It’s called the Saver’s Credit, I bet some of you don’t know about it.

Read on to learn more, and to find out how to take advantage of, ahem, FREE MONEY. 💰


The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is a tax credit eligible to certain filers who contribute to either an IRA or an employer-sponsored retirement plan such as a 401(k).

This tax credit can provide up to a 50% credit on contributions, up to a maximum of $1,000, in a given year.

I’m not sure when the Saver’s Credit first showed up. I did some sleuthing and found that the IRS hosts tax forms from previous years on its site, and I was able to find the form going all the way back to 2002.

So while I can’t be certain, I suspect that 2002 was the first year this credit was around, as the IRS has forms from years prior to this on its site.

Reminder: Tax credit is better than a tax deduction

The Saver’s Credit is a tax credit. This means that the amount of credit is directly reducing your tax liability.

As in, if you owe $10,000 and have a $1,000 tax credit, you’ll only owe $9,000.

This is as opposed to a tax deduction which just reduces the amount of money subject to tax.

As in, if you owe $10,000 and have a $1,000 tax deduction, given a 25% tax rate, that means that your taxes would be reduced by only $250, and you’ll owe $9,750.

Income caps

Not everyone can take advantage of this credit. Your eligibility is tied primarily to your income and your filing status.

I’ll put some income figures here, but recognize that this post was written based on the 2020 tax season, and so the numbers will change (hello, future people!).

Most simply, if your income is over $65,000, you can’t take this credit.

Here are the maximum incomes per filing status. (Note that this is more-or-less your Adjusted Gross Income (AGI), but make sure to read the instructions for the details and caveat creditor.)

Maximum income:

  • Single: $32,500
  • Married filing separately: $32,500
  • Head of household: $48,750
  • Married filing jointly: $65,000

How much can you get?

The maximum amount you can receive as a tax credit is $1,000.

But you can’t just contribute $1,000 to your IRA and expect to get $1,000 back.

The maximum percentage of contribution you can get back is 50%. So in order to get $1,000 back, you would need to contribute $2,000.

Percentages and phase outs

But it might not be 50%. It might be less depending on your income, even if you are below the income caps.

Instead of a linear phaseout, like the Roth IRA income eligibility, the phaseout happens in discrete steps; it’s either 50%, 20%, 10%, or nothing.


  • 50%: $0-$19,500
  • 20%: $19,500-$21,250
  • 10%: $21,250-$32,500

Married filing separately:

  • 50%: $0-$19,500
  • 20%: $19,500-$21,250
  • 10%: $21,250-$32,500

Head of household:

  • 50%: $0-$29,250
  • 20%: $29,250-$31,875
  • 10%: $31,875- $48,750

Married filing jointly:

  • 50%: $0-$39,000
  • 20%: $39,000-$42,500
  • 10%: $42,500-$65,000

Here are some examples:

  • Jamie is single and has an AGI of $30,000. After contributing $2,000 to a Roth IRA, Jamie receives a $200 tax credit. ($2,000 × 10%)
  • Pat and filing as head of household, and with an AGI of $29,000. Pat contributes $5,000 to a 401(k) and receives a $1,000 tax credit. ($2,000 × 50%)
  • Chris and Kay are married and filing jointly, with an AGI of $42,000. After contributing $6,000 to a combination of retirement plans, they receive a $400 tax credit. ($2,000 × 20%)
  • Les is single and earned only $5,000 in income. After a contribution of $500 to a Roth IRA, Les gets a $250 tax credit. ($500 × 50%)

Why this might be newly relevant to you

One word: the pandemic.

Many of you made a lot less money since the pandemic has started. I’m sure plenty of you reading this got laid off from at least one job, or perhaps just furloughed for a time.

And let’s be honest, the Saver’s Credit isn’t a higher-income benefit. It’s clearly targeted at those with lower-income.

That may be you this year. No shame; many people are in different circumstances. I certainly am in a different place now than I was a few years ago.

Final rant

So why am I talking about this credit outside of tax season?

Because I want you have time to decide whether you want to take advantage of this credit.

If you’re in a lower-income situation, contributing to retirement may not seem like the top priority right now.

But it is. You need to save as much as possible, and as soon as possible, to be able to live your later years in as much comfort as possible.

Unfortunately, no one is coming to save you. The government can’t get its act together to provide the most basic of social safety net for any amount of time. We have the money and resources to make sure that everyone can live comfortably, but we’ve decided to punish people who aren’t like us to make ourselves feel better.

So, with all this in mind, you might want to consider contributing $2,000 at the very least to a retirement fund this year if you can possibly swing it. Not only can that money grow wildly over time, but you’ll also get some of it right back.

You probably haven’t figured out your retirement plan. That’s okay, but it’s definitely time to change that. If you want help figuring out how to save for your retirement, click here.

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