Q My understanding is that if I contribute to a retirement plan, I may qualify for an additional tax credit along with a tax deduction. For 2025, I plan to contribute to a Roth IRA. How does this credit work?

A In an effort to provide an incentive for low-income individuals to contribute to their retirement plans, Congress passed the Retirement Savings Contribution Credit (Form 8880), often referred to as the “Saver’s Credit,” a nonrefundable tax credit for contributions made by an eligible taxpayer to a qualified plan.

The credit offsets both regular tax and Alternative Minimum Tax and is in addition to any applicable deduction.

The maximum retirement plan contribution eligible for the credit is $2,000 and an eligible taxpayer must be age 18 or over, not a full-time student or claimed as a dependent on another’s tax return.

The maximum credit allowed is $1,000 and is calculated using an “applicable percentage” based upon your filing status and adjusted gross income (AGI).

The 2025 Adjusted Gross Income limit for the saver’s credit is: $79,000 for married couples filing jointly, $59,250 for heads of household, $39,500 for married individuals filing separately and for singles.

The credit is available for elective contributions to any of the following plans: 401(k) plan, 403(b) plan, 457(b) plan, Simple IRA, SEP IRA, Traditional and Roth IRA’s (other than rollover contributions), ABLE accounts, Voluntary after-tax contributions to a qualified retirement plan

With limited exceptions, the qualified contribution is reduced by distributions made:

During the year the credit applies, during the two preceding years or the due date of the return for the year in which the credit applies.

Monterey resident Barry Dolowich is a certified public accountant and owner of a full-service accounting and tax practice with offices in Monterey. He can be reached at (831) 372-7200. Please address any questions to Barry at P.O. Box 710 Monterey, CA 93942-0710 or email: bdolowich@gmail.com