Retirement Credit: How to Qualify and Claim It

The Retirement Savings Contributions Credit, often called the Saver’s Credit, is a federal tax benefit to help low- and moderate-income individuals save for retirement. This credit directly reduces your tax liability on a dollar-for-dollar basis. As a nonrefundable credit, it can decrease your tax to zero, but you will not receive any portion of it back as a refund if the credit amount is larger than your tax bill.

Determining Your Eligibility

To qualify for the Saver’s Credit, you must meet several requirements regarding your income, age, and student status. Your adjusted gross income (AGI) must be below a certain threshold, which varies by filing status and is detailed in the calculation section below.

You must be at least 18 years old by the end of the tax year. You also cannot be claimed as a dependent on another person’s tax return.

Finally, you are ineligible if you were a full-time student for any part of five calendar months during the tax year. This applies to students at colleges, universities, and technical, trade, or mechanical schools. A full-time student is someone enrolled for the number of hours or courses the school considers a full-time schedule.

Calculating the Credit Amount

The credit is a percentage of the first $2,000 you contribute to a retirement account, or $4,000 for those married filing jointly. The credit rate you can claim is 50%, 20%, or 10%, and is determined by your AGI and filing status. The lower your income, the higher your credit rate.

For the 2025 tax year, the AGI thresholds for the credit rates are as follows. For Married Filing Jointly, the 50% rate applies to an AGI up to $47,500, the 20% rate for an AGI of $47,501-$51,000, and the 10% rate for an AGI of $51,001-$79,000. For Head of Household, the 50% rate applies to an AGI up to $35,625, the 20% rate for an AGI of $35,626-$38,250, and the 10% rate for an AGI of $38,251-$59,250. For Single filers, the 50% rate applies to an AGI up to $23,750, the 20% rate for an AGI of $23,751-$25,500, and the 10% rate for an AGI of $25,501-$39,500.

Contributions to many retirement accounts qualify for the credit, but rollover contributions do not. Qualifying accounts include:

• Traditional and Roth IRAs
• 401(k) plans
• 403(b) plans
• SIMPLE IRAs
• Salary Reduction Simplified Employee Pension (SARSEP) plans

Your total qualifying contributions must be reduced by any distributions you received from a retirement account. This look-back period includes the current tax year, the two prior tax years, and the period between the end of the tax year and when you file your return. For example, if you contributed $2,000 to your 401(k) but took a $500 distribution from an IRA last year, your contribution amount for the credit calculation is reduced to $1,500. This reduction applies to distributions from any retirement account, including non-taxable distributions from a Roth IRA.

How to Claim the Credit

To claim the Saver’s Credit, you must complete and attach IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to your federal income tax return. This form is where you will calculate the exact amount of your credit.

You will enter your total contributions to all qualifying retirement accounts on the designated line. The form also requires you to report any recent distributions that reduce your contribution amount. The instructions for Form 8880 provide a worksheet to help you accurately calculate this reduction.

The form then guides you to use your AGI from your Form 1040 to find the applicable decimal rate, which corresponds to the 50%, 20%, or 10% credit tiers. Multiplying your net contribution amount by this decimal will give you the final credit amount.

Once calculated on Form 8880, you must transfer that amount to the appropriate line on Schedule 3 (Form 1040), Additional Credits and Payments. Using tax software will typically automate this process, filling out Form 8880 and transferring the result based on the financial data you input.