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Get a Tax-Break Bonus for Saving for Retirement

IRAs and workplace retirement accounts, such as a 457, 401, or 403(b) plan, provide tax breaks to encourage you to save for your future. But your contributions to these accounts become even more rewarding if you qualify for the Retirement Savings Contributions Credit, better known as the Saver's Credit.

The credit can be worth as much as $1,000 for single tax filers and $2,000 for joint filers. Unlike a tax deduction — which simply lowers the amount of income subject to tax — a tax credit directly reduces your tax bill dollar-for-dollar.

Who qualifies? The Saver's Credit is available to those with low to moderate incomes who contribute to an IRA or workplace retirement plan such as a 457, 401 and 403(b). If you are the beneficiary of an ABLE account — designed for those with disabilities — your contributions to the account also qualify for the Saver's Credit. You aren't eligible for the credit if you're under age 18, a full-time student, or claimed as a dependent.

How much is it worth? The size of the credit depends on your filing status, adjusted gross income, and how much you sock away in a retirement account. You may be entitled to a credit worth 10%, 20%, or 50% of the first $2,000 you contribute to a retirement account if single, or $4,000 if married filing jointly.

Use this IRS chart to figure your 2020 tax credit:

  Joint Filers Singles*
50% of your contribution AGI of $39,000 or less AGI of $19,500 or less
20% of your contribution $39,001-$42,500 $19,501-$21,250
10% of your contribution $42,501-$65,000 $21,251-$32,500


*Also applies to those widowed and married filing separately

For 2021, the income limits to qualify for the credit will go up to $33,000 for singles and $66,000 for joint filers.

What makes the credit so powerful? It's on top of any other tax break you may get from investing in a retirement account. For example, if you're eligible for the Saver's Credit as well as a deductible contribution to a traditional IRA, you would get both tax breaks.

To claim the credit, fill out Form 8880 and submit with your tax return. Learn more with this Saver's Credit resource from ICMA-RC.

Please note: The contents of this publication provided by ICMA-RC is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment adviser to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document contains information obtained from outside sources and it references external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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