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What the Heck Is the Saver’s Credit?


By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC


Formally known as the Retirement Savings Contribution Credit, the “saver’s credit” is a dollar-for-dollar reduction in the amount of taxes a moderate or lower-income consumer may owe just by saving funds for retirement. Financial types like to talk about tax deductions which are a reduction in the amount of total income upon which a consumer must pay tax. The saver’s credit, better than a deduction, is actually a tax credit which reduces your tax bill. Depending on several factors that we will explore here, a citizen can receive a credit of 10%, 20%, or 50% up to a cap of $1,000 for a single taxpayer or up to $2,000 for a married couple filing jointly.

There are some conditions one must meet to be eligible for the tax credit. That person or persons must be over 18 years of age and not a full-time student. Another prerequisite is that the taxpayer must not be filed as a dependent on someone else’s return. Another important condition is that the money to be saved in a retirement vehicle must be new money rather than a “rollover” or transfer of funds from another retirement account. Lastly, as with any contribution to a retirement account, money assigned to a retirement account like a 401K or IRA must be “earned income.” Earned income, according to a 2024 article in Investopedia, includes wages/salaries, commissions, tips, self-employment income, and even taxable alimony or separation settlements if they are decreed on or before 12/31/18.

The amount of the saver’s credit accrued to the taxpayer depends on the amount of their retirement account contribution and their Adjusted Gross Income or AGI. For tax year 2024, a 50% tax credit is given to a married couple filing jointly if their AGI is $46,000 or less. The same 50% credit is given to Head of Household savers whose AGI is $34,500 or less and all others (single taxpayers and married couples filing separately) at an AGI of $23,000 or less. The 20% credit in 2024 is for jointly filing married couples making $46,001 to $50,000. On the other hand, this level of credit is awarded to Head of Household filers whose AGI is $34,501 to $37,500 and the AGI limits for all other taxpayers is $23,001 to $25,000. Lastly, the 10% saver’s credit in 2024 is given to married taxpayers filing jointly at income levels from $50,001 To $76,500. For Head of Household filers in 2024, the income limits are $37,501 to $57,375 and all other taxpayers have an AGI limit of $25,001 to $38,250.


Let’s try an example. Lisa and Joe, married with two children, file jointly. In 2024, Lisa is promoted to a new administrative job at the hospital where she has worked and is paid $40,000. Joe, a stay-at-home dad to their young children, earns $5,000 total on a side job doing graphic design work from home. Lisa contributes $4,000 to her 401K at the hospital and Joe contributes his whole $5,000 in earnings to his Roth IRA that he has with their financial advisor. Lisa and Joe’s Adjusted Gross Income in 2024, then, is $45,000 and falls into the married filing jointly saver’s credit boundary of 50% for an AGI of $46,000 or less. Their retirement fund contributions in 2024 were $9,000. 50% X $9,000 is $4,500. The credit is capped, though, at $4,000 for married couples filing jointly in 2024. Thus, their saver’s credit on their 2024 tax form will be $4,000. Please note also that they will have a tax saving for Lisa’s pre-tax contribution to her hospital 401K. Instead of reporting $40,000 on her W-2, her end-of-year tax form will show $36,000 in income after taking into account her 401K  contribution. Since Joe’s contribution was to his Roth IRA, that is considered “after-tax” so his taxable income is the whole $5,000 he brought in from his side gig.


Do you have questions about retirement accounts or, in general, how to make your money work better and smarter for you?  I’d love to have a complimentary conversation with you!  Please email riane@hhcinvestmetns.net or call 563-949-4705.


Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.