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Updated December 15, 2023
The Retirement Savings Contribution Credit and the Saver's
Match
The Retirement Savings Contribution Credit (Internal
Revenue Code [I.R.C.] §25B)-commonly referred to as
the Saver's Credit-is a tax expenditure meant to encourage
low- and moderate-income taxpayers to save for retirement.
The SECURE 2.0 Act of 2022 (SECURE 2.0; Division T
of P.L. 117-328) included a provision that replaces the
Saver's Credit with a Saver's Match beginning in 2027.
This In Focus describes these two subsidies for saving and
their effects (actual or potential) on saving.
The Saver's Credit
Eligible taxpayers can claim a nonrefundable tax credit for
contributions to certain retirement accounts. The Economic
Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA; P.L. 107-16) created the Saver's Credit. The
credit took effect in 2002 and was scheduled to expire after
2006, but the Pension Protection Act of 2006 (P.L. 109-
290) made it permanent.
To claim the tax credit, the saver must (1) be at least 18
years old; (2) not be claimed as a dependent on someone
else's tax return; (3) not be a full-time student; and (4) fall
under specified income thresholds.
The maximum credit amount is $1,000 per person (up to
$2,000 per married couple filing jointly). Taxpayers
calculate the credit by multiplying their qualified retirement
account contributions (up to a limit) by a credit rate (which
declines as income rises). The credit is nonrefundable,
meaning the credit cannot exceed income tax liability.
Since low-income taxpayers typically owe little to no
income tax, nonrefundable credits like the Saver's Credit
may have little to no effect on their tax liability.
Retirement account contributions of up to $2,000 per
person qualify for the credit. Eligible contributions include
those to traditional and Roth Individual Retirement
Accounts (IRAs) and defined contribution (DC) retirement
plans, such as 401(k) plans. From 2018 through 2025, P.L.
115-97 (commonly known as the Tax Cuts and Jobs Act)
lets taxpayers claim the Saver's Credit for contributions to
their own Achieving a Better Life Experience (ABLE)
accounts. ABLE accounts are tax-favored savings vehicles
for people with disabilities.
The credit rate depends on a taxpayer's adjusted gross
income (AGI) and filing status. The AGI thresholds create
cliffs at which the credit rate falls discretely, from 50% to
20%; 20% to 10%; and 10% to 0% (Figure 1). These
thresholds are adjusted annually for changes to the cost of
living.
In 2023, the maximum credit rate of 50% is available to
taxpayers with AGIs of $43,500 or less for married
taxpayers filing joint returns, $32,625 or less for head of
household (HoH) filers, and $20,750 or less for single filers
and other filers. For example, a married taxpayer earning
$43,500 who files jointly and makes $2,000 in eligible
contributions would be eligible for a $1,000 credit. If the
couple's income increased by one dollar, their credit would
fall to $400 ($2,000 x 20%). No credit is available for
married taxpayers filing joint returns once AGI exceeds
$73,000 since the credit rate is zero.
Figure I. Rate of Saver's Credit by Filing Status, 2023
Credit Rate
60%
50%
40% Married Filng jointy
30%
20% Mcad ot House hold
20%
10%-
0%
$OK $20K $40K $60K $80K
Adjusted Gross Income
Source: CRS and I.R.C. §25B.
Notes: The credit rate applies to contributions, not to AGI.
While the maximum credit is $1,000 per individual ($2,000
per married couple), most taxpayers receive less. Many
low-income households lack resources to contribute to their
retirement accounts to qualify for the maximum credit.
Since the credit is nonrefundable, many lack sufficient tax
liability to receive the full credit.
The Joint Committee on Taxation (JCT) estimated the
Saver's Credit will cost the federal government $1.5 billion
in foregone revenue in FY2024.
Saver's Credit Statistics
Few taxpayers claim the Saver's Credit, and the average
credit is small. Table 1 shows that in 2021, the Internal
Revenue Service (IRS) estimates that 5.7% of taxpayers
claimed the credit, and the average credit was $191.
A smaller share of low-income earners claimed the credit
than those with moderate incomes. Of taxpayers with AGI
below $10,000, 0.04% claimed the credit, as few such
taxpayers have income tax liabilities. Of those with AGIs
from $25,000 to under $50,000, 15.1% claimed the credit.](ViewImageLocal?handle=hein.crs/govensp0001&div=1&collection=&method=preview&ext=.png&size=3)
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