Saver's Credit with a 401(k) and a traditional IRA
A single filer on a modest wage saves through his workplace 401(k) and a traditional IRA. Deduct the IRA on Schedule 1, then work Form 8880: the $2,000 cap, the AGI rate table, and the credit limit worksheet.
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Taxpayer facts
Who this is and what their year looked like.
Hector is single, 31, and lives in San Antonio, Texas. He works full time as an inventory clerk at a building supply warehouse and has no dependents.
He started saving for retirement in 2025. He defers part of each paycheck into his employer's 401(k), and in June he opened a traditional IRA and put money into it. He has never taken money out of any retirement account. He has no other income and takes the standard deduction.
Source documents
The 2 documents you will prepare the return from: W-2 (Wage and Tax Statement), 5498 (IRA Contribution Information).
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Objectives
What a correct return should capture.
- File as Single. Confirm Hector can take the Saver's Credit at all: born before January 2, 2008, not claimed as anyone's dependent, and not a full-time student in 2025.
- Report the W-2 box 1 wages on Form 1040, line 1a. The box 12 code D deferral is already left out of box 1, so do not subtract it again.
- Deduct the traditional IRA contribution on Schedule 1, line 20. He is covered by a workplace plan, so check his modified AGI against the 2025 single phase-out range of $79,000 to $89,000 to see how much is deductible.
- Apply the 2025 single standard deduction ($15,750) and look up the tax in the tax tables (taxable income is under $100,000).
- On Form 8880, enter the IRA contribution on line 1 and the 401(k) deferral on line 2, enter zero distributions on line 4, and apply the $2,000 per-person cap on line 6.
- Find the credit rate for line 9 in the Single column of the 2025 table, using the AGI from Form 1040, line 11a (after the IRA deduction).
- Complete the Credit Limit Worksheet for line 11 (tax from Form 1040, line 18, less any credits on Schedule 3 lines 1 to 3, 6d and 6l), and carry the smaller of line 10 or line 11 to Schedule 3, line 4.
- Reconcile the withholding to the refund or balance due. Note that Texas has no state income tax, so there is no state return here.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
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