Saver's credit

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The  is a non-refundable tax credit for taxpayers who make eligible contributions to eligible retirement plans. The credit was first established for the tax years 2002 to 2006 under the economic growth and tax relief reconciliation act of 2001 (EGTRRA, Sec. 618). and was made permanent under the Pension Protection Act of 2006 (PPA), Sec. 801.

Eligible taxpayers
In order to qualify for the saver's credit, a taxpayer must meet three qualifications. The taxpayer must be:
 * Age 18 or older;
 * Not a full-time student; and
 * Not claimed as a dependent on another person’s return.

If filing MFJ and only one spouse qualifies, that spouse may claim the credit for contributions in his/her name. See Form 8880.

Eligible plans
The saver’s credit can be taken for contributions to a traditional or Roth IRA; 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and voluntary after-tax employee contributions to qualified retirement and 403(b) plans.

Income eligibility
The amount of the credit is 50%, 20% or 10% of a taxpayer's retirement plan or IRA contributions, depending on adjusted gross income (reported on Form 1040 or 1040A). For the purpose of this credit, only $2,000 per person of contributions is considered. For example, if only one person in a MFJ couple makes a contribution and that contribution is $6,000, only $2,000 will be considered for the saver's credit. If each spouse contributes $2,000, then $4,000 will be considered. See lines 6 and 7 of Form 8880 for details.

The qualifying income limits for the 2020 and 2019 tax years are provided in the tables below:

* Single, married filing separately, or qualifying widow(er)

Note that the credit is based on Adjusted Gross Income; if you contribute to a deductible IRA or 401(k), this will lower your AGI and may make you eligible for a larger credit. You can even contribute to a deductible IRA for the previous year through April 15 of the current year in order to move to a different credit category.

Testing period
The saver's credit can be reduced or the taxpayer rendered ineligible for the credit if a taxpayer (or taxpayer's spouse if filing a joint return) receives a distribution from a qualifying retirement plan. There is a testing period imposed when taking the credit. The testing period is the two years preceding the year for which the credit is claimed, and/or January 1 to April 15 of the year following the year for which the credit is claimed. For example, if the saver's credit is claimed for 2014, distributions that occur during tax years 2012 and 2013, and from January 1, 2015, to April 15, 2015, could affect the individual's eligibility to claim the credit.

ABLE Contributions
Starting in 2018, contributions made to ABLE accounts (i.e. 529A plans) by the designated beneficiaries of such accounts are eligible for the saver's credit. Rollover contributions do not qualify for this credit. ABLE distributions reduce the amount of contribution eligible for the saver's credit.