The Retirement Savings Contributions Credit (Saver's Credit) rewards lower-income savers with an income-tax credit of up to 50% of the amount contributed to qualified retirement savings plans. Because the Basic Allowance for Housing (BAH) is not taxable income, many military families may qualify for this credit. Bonus: Because eligibility is based upon adjusted gross income (AGI), even higher-earning military families may qualify during years with tax-free income due to time spent in a combat zone.
Who Is Eligible?
You may be eligible for the Saver's Credit if you are:
- Age 18 or older
- Not a full-time student
- Not claimed as a dependent on another person's return
- Contributing to a qualified retirement savings plan
What Savings Are Eligible for the Credit?
Your contributions to the following plans are eligible for the Saver's Credit:
- Traditional IRA
- Roth IRA
- 401(k)
- 403(b)
- 501(c)(18)
- 457(b)
- Thrift Savings Plan
- SIMPLE IRA (Savings Incentive Match Plan for Employees IRA)
- SEP IRA (Simplified Employee Pension plan)
- Other qualified retirement plans
Contributions to these accounts made by your employer on your behalf are not eligible for this credit.
If you've taken any distributions from a plan within the last two years, there are special rules about how your contributions are calculated. If you are in this situation, you need additional assistance with the process.
How Much Is the Credit?
The Saver's Credit amount is based on your filing status and AGI. Keep in mind that the Saver's Credit is nonrefundable, which means that while it can bring your tax liability to zero, it will not generate a payment if you have no tax due.
The income limits for this credit change yearly.
For single taxpayers in 2022:
- You can receive a credit of 50% of your contribution if your AGI is less than $20,500 per year.
- You can receive a credit of 20% of your contribution if your AGI is between $20,501 and $22,000 per year.
- You can receive a credit of 10% of your contribution if your AGI is between $22,001 and $34,000 per year.
Single taxpayers are not eligible for the credit if your AGI exceeds $34,000 per year.
For head-of-household taxpayers in 2022:
- You can receive a credit of 50% of your contribution if your AGI is less than $30,750 per year.
- You can receive a credit of 20% of your contribution if your AGI is between $30,751 and $33,000 per year.
- You can receive a credit of 10% of your contribution if your AGI is between $33,001 and $51,000 per year.
Head-of-household filers are not eligible for the credit if your AGI exceeds $51,000 per year.
For married taxpayers filing jointly in 2022:
- You can receive a credit of 50% of your contribution if your AGI is less than $41,000 per year.
- You can receive a credit of 20% of your contribution if your AGI is between $41,001 and $44,000 per year.
- You can receive a credit of 10% of your contribution if your AGI is between $44,001 and $68,000 per year.
Married taxpayers filing jointly are not eligible for the credit if your AGI exceeds $68,000 per year.
How to Claim
The credit can be claimed by using the IRS Form 8880. It is a relatively simple form, and the instructions are included.
Most tax preparation software will walk you through eligibility for the Saver's Credit. Even so, be a little familiar with it so that you can be sure that your tax software is getting all the right details.
Not sure if you are eligible? Read the form's instructions; check with your base's Volunteer Income Tax Assistance (VITA) office; or consult a tax professional. This credit can be quite valuable, especially if you contribute significant amounts to your TSP or other qualified retirement plans.
If you meet the income qualifications for the Saver's Credit, you would be silly not to contribute to a qualified retirement plan. This is basically free money. Take advantage of it.
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