Is the Retirement Savings Credit Refundable?

The Retirement Savings Contributions Credit, often called the Saver’s Credit, is a nonrefundable tax credit. This means it can lower your federal income tax liability on a dollar-for-dollar basis, potentially reducing what you owe to zero. A nonrefundable credit’s value is limited to the amount of tax you owe. For instance, if you qualify for a $500 credit but your total tax bill is only $300, the credit will eliminate the $300 liability, but you will not receive the remaining $200 as a refund. This is different from a refundable credit, which can be paid out even if you have no tax liability.

Eligibility Requirements for the Credit

The first requirement for the Saver’s Credit is age; you must be at least 18 years old by the end of the tax year. Another condition is that you cannot be claimed as a dependent on someone else’s tax return. The rules also consider student status. You cannot have been a full-time student for any part of five calendar months during the tax year to be eligible.

The adjusted gross income (AGI) limit determines both eligibility and the credit rate you receive. For the 2025 tax year, the credit rate is 50%, 20%, or 10% depending on your AGI and filing status.

To receive the 50% credit, your AGI must be no more than $23,750 if single, $35,625 as a head of household, or $47,500 if married filing jointly. The credit rate drops to 20% for AGIs between $23,751 and $25,500 for single filers, $35,626 and $38,250 for heads of household, and $47,501 and $51,000 for joint filers. The 10% rate applies to AGIs up to the maximum thresholds of $39,500 for single filers, $59,250 for heads of household, and $79,000 for joint filers. If your AGI exceeds these final limits, you cannot claim the credit.

Calculating Your Credit Amount

The credit is calculated as a percentage of the first $2,000 in contributions for single individuals and $4,000 for those married filing jointly. Contributions to various accounts qualify, including traditional or Roth IRAs, 401(k)s, 403(b)s, and SIMPLE IRA plans. Rollover contributions from one retirement account to another do not count toward the credit.

To illustrate, consider a single individual with an AGI of $20,000 who contributes $1,500 to a 401(k). Based on their income, they would fall into the 50% credit rate category. The credit would be 50% of their $1,500 contribution, resulting in a $750 credit. However, because the credit is nonrefundable, the final amount is limited by their tax liability. If their tax liability is only $500, they can only use $500 of the credit.

How to Claim the Saver’s Credit

Claiming the Saver’s Credit requires filing a specific form with your annual tax return. You must complete IRS Form 8880, Credit for Qualified Retirement Savings Contributions, and attach it to your Form 1040. Before filling out the form, you will need to gather information about your retirement contributions for the year. This includes the total amounts you contributed to IRAs and employer-sponsored plans, which can typically be found on your account statements or Form 5498 for IRA contributions.

On Form 8880, you will report your total retirement contributions and then calculate the credit amount based on your AGI and filing status. The form guides you through the calculation, including applying the correct credit rate (50%, 20%, or 10%) to your eligible contributions, up to the $2,000 or $4,000 limit. The form also accounts for any recent distributions you may have taken from a retirement account, as these can reduce your eligible contribution amount.

Once you have calculated the total credit on Form 8880, you transfer that amount to Schedule 3 (Form 1040), which is used to report various nonrefundable credits. The total from Schedule 3 then flows to your main Form 1040, where it reduces your tax liability. Using tax software can simplify this process, as it will typically fill out and file Form 8880 for you based on the financial information you provide.

Future of the Saver’s Credit

Beginning in 2027, the credit is scheduled to be replaced by a new program called the Saver’s Match. Under this new system, the federal government will provide a matching contribution that is deposited directly into a taxpayer’s retirement account, rather than being a nonrefundable credit that only reduces tax liability.