The Retirement Savings Contribution Credit and the Saver’s Match

The Retirement Savings Contribution Credit and the Saver’s Match

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Updated December 15, 2023
The Retirement Savings Contribution Credit and the Saver’s
Match
The Retirement Savings Contribution Credit (Internal
In 2023, the maximum credit rate of 50% is available to
Revenue Code [I.R.C.] §25B)—commonly referred to as
taxpayers with AGIs of $43,500 or less for married
the Saver’s Credit—is a tax expenditure meant to encourage
taxpayers filing joint returns, $32,625 or less for head of
low- and moderate-income taxpayers to save for retirement.
household (HoH) filers, and $20,750 or less for single filers
The SECURE 2.0 Act of 2022 (“SECURE 2.0”; Division T
and other filers. For example, a married taxpayer earning
of P.L. 117-328) included a provision that replaces the
$43,500 who files jointly and makes $2,000 in eligible
Saver’s Credit with a Saver’s Match beginning in 2027.
contributions would be eligible for a $1,000 credit. If the
This In Focus describes these two subsidies for saving and
couple’s income increased by one dollar, their credit would
their effects (actual or potential) on saving.
fall to $400 ($2,000 x 20%). No credit is available for
married taxpayers filing joint returns once AGI exceeds
The Saver’s Credit
$73,000 since the credit rate is zero.
Eligible taxpayers can claim a nonrefundable tax credit for
contributions to certain retirement accounts. The Economic
Figure 1. Rate of Saver’s Credit by Filing Status, 2023
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
Source: CRS and I.R.C. §25B.
declines as income rises). The credit is nonrefundable,
Notes: The credit rate applies to contributions, not to AGI.
meaning the credit cannot exceed income tax liability.
Since low-income taxpayers typically owe little to no
While the maximum credit is $1,000 per individual ($2,000
income tax, nonrefundable credits like the Saver’s Credit
per married couple), most taxpayers receive less. Many
may have little to no effect on their tax liability.
low-income households lack resources to contribute to their
Retirement account contributions of up to $2,000 per
retirement accounts to qualify for the maximum credit.
person qualify for the credit. Eligible contributions include
Since the credit is nonrefundable, many lack sufficient tax
those to traditional and Roth Individual Retirement
liability to receive the full credit.
Accounts (IRAs) and defined contribution (DC) retirement
plans, such as 401(k) plans. From 2018 through 2025, P.L.
The Joint Committee on Taxation (JCT) estimated the
Saver’s Credit will cost the federal government $1.5 billion
115-97 (commonly known as the “Tax Cuts and Jobs Act”)
lets taxpayers claim the Saver’s Credit for contributions to
in foregone revenue in FY2024.
their own Achieving a Better Life Experience (ABLE)
Saver’s Credit Statistics
accounts. ABLE accounts are tax-favored savings vehicles
for people with disabilities.
Few taxpayers claim the Saver’s Credit, and the average
credit is small. Table 1 shows that in 2021, the Internal
The credit rate depends on a taxpayer’s adjusted gross
Revenue Service (IRS) estimates that 5.7% of taxpayers
income (AGI) and filing status. The AGI thresholds create
claimed the credit, and the average credit was $191.
“cliffs” at which the credit rate falls discretely, from 50% to
A smaller share of low-income earners claimed the credit
20%; 20% to 10%; and 10% to 0% (Figure 1). These
than those with moderate incomes. Of taxpayers with AGI
thresholds are adjusted annually for changes to the cost of
below $10,000, 0.04% claimed the credit, as few such
living.
taxpayers have income tax liabilities. Of those with AGIs
from $25,000 to under $50,000, 15.1% claimed the credit.
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The Retirement Savings Contribution Credit and the Saver’s Match
Table 1. Share of Tax Returns Claiming Saver’s Credit
benefit rate falls suddenly. This change should minimize
and Average Credit Amount, 2021
the degree to which the tax benefit encourages taxpayers to
report lower incomes.
AGI
Share Claiming
Average Credit
$1-<$10K
~0.0%a
$183
Unlike for the Saver’s Credit, these thresholds will be
$10K-< $25K
7.0%
$176
calculated using a modified AGI that does not exclude the
$25K-<$50K
15.1%
$200
value of contributions to qualified retirement accounts. The
$50K-<$75K
6.5%
$176
JCT estimated that the Saver’s Match will lower revenues
$75K+
0.0%
$0
by $9.3 billion from FY2023 to 2032.
All Taxpayers
5.7%
$191
Source: CRS and IRS Statistics of Income.
Despite both having maximum benefit rates of 50%, the
a. The share claiming the credit is positive but rounds to 0.0%.
rates apply to different bases. Unlike the Saver’s Match, the
Saver’s Credit lets taxpayers contribute more cash out of
Why Do Few Claim the Credit?
pocket, and therefore qualify for a larger credit. For
example, if an eligible taxpayer was willing to reduce
Empirical studies (all of which are at least a decade old)
consumption by $600 to save, he or she could contribute
generally found that the Saver’s Credit does not encourage
$1,200 and offset the cost with a $600 Saver’s Credit. In
low-income taxpayers to save more for retirement. There
contrast, a similar taxpayer who received the Saver’s Match
are several possible reasons low-income people struggle to
would contribute $600 and receive a $300 match, for total
save. In a recent Federal Reserve study, 32% of households
savings of $900. Whereas the Saver’s Credit provides up to
said they could not cover a sudden expense of less than
50% of total after-tax-benefit savings, the Saver’s Match
$500 in full using cash, suggesting many lack the financial
will provide up to 33% (Figure 2).
capacity to save. Further, 87% of the lowest-earning fifth of
households did not hold retirement accounts in 2022.
Figure 2. Adjusted Saver’s Match Rates, 2027
Additionally, since the Saver’s Credit is nonrefundable, it
offers little (or no) benefit to low-income households with
little (or no) income tax liability. Lack of awareness might
also limit the credit’s efficacy. In 2021, 48% of workers at
for-profit companies had heard of the credit. Taxpayers
could not claim the credit using Form 1040EZ—meant for
lower-income filers with simple returns before the IRS
discontinued it as of 2018—which may have made lack of
awareness particularly significant.
Even if the Saver’s Credit were to encourage retirement
savings, it may not raise overall savings. Early withdrawal
penalties for certain types of accounts are a barrier to
retirement saving. If the Saver’s Credit helps overcome this

Source: CRS and I.R.C. §6433.
barrier, some taxpayers may shift other forms of savings

into retirement accounts, without increasing total savings.
The Saver’s Match does not address other barriers that may
One 2013 study found some taxpayers adjusted their
prevent low-income people from saving. These include
income to points just below cliffs to maximize this credit.
access to employer-provided retirement accounts and a lack
This suggests that rather than encouraging saving, the credit
of resources to save.
may discourage taxpayers from earning (or reporting)
additional income to avoid losing the credit.
Despite these considerations, Saver’s Match may create an
incentive to save for some people that the Saver’s Credit
Change to a Saver’s Match
does not reach. Those who contribute up to the Saver’s
SECURE 2.0 created a federal Saver’s Match to replace the
Credit contribution cap of $2,000 (meaning they save less
Saver’s Credit in 2027 (I.R.C. §6433). Rather than
out of pocket, after accounting for the credit they receive)
receiving a credit, eligible individuals will have matches
will continue receiving the Saver’s Match on additional
contributed to their retirement accounts. Relative to the
savings until their out-of-pocket savings reach the cap of
Saver’s Credit, the Saver’s Match will have a lower
$2,000. The Saver’s Match will also not be limited to a
maximum effective rate, but it may reach more taxpayers.
saver’s income tax liability, removing a barrier for the
lowest-income savers. SECURE 2.0 also encouraged the
Savers with modified AGIs below $20,500 ($41,000 for
Treasury Department to promote the Saver’s Match, which
married filing jointly) will qualify for a 50% federal match
may improve its salience with taxpayers.
on up to $2,000 in retirement savings—that is, a maximum

match of $1,000. This income threshold will be adjusted for
Molly F. Sherlock wrote a prior version of this In Focus.
the cost of living for years after 2027. Those who earn up to
$15,000 more than this threshold ($30,000 more for married
Brendan McDermott, Analyst in Public Finance
couples filing jointly) will qualify for a reduced match. The
match’s structure eliminates the sudden cliffs at which the
IF11159
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The Retirement Savings Contribution Credit and the Saver’s Match

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https://crsreports.congress.gov | IF11159 · VERSION 4 · UPDATED