26 U.S.C. § 25B — Elective deferrals and IRA contributions by certain individuals

(a) Allowance of credit: If you're an "eligible individual," you get a tax credit equal to the "applicable percentage" of your qualified retirement savings contributions for the year, counting only up to $2,000 of contributions. (b) Applicable percentage: (1) Joint returns: if your adjusted gross income (AGI) is $30,000 or less, the percentage is 50%; over $30,000 up to $32,500, it's 20%; over $32,500 up to $50,000, it's 10%; over $50,000, it's zero. (2) Other returns: (A) for a head of household, use the same brackets as joint filers, but multiply each dollar amount by 75%. (B) For everyone else, use the joint brackets with each dollar amount multiplied by 50%. (3) Inflation adjustment: for tax years starting after 2006, each dollar amount in the brackets goes up each year using a cost-of-living formula, rounded to the nearest $500. (c) Eligible individual: (1) In general, you must have turned 18 by the end of the tax year. (2) You are not an "eligible individual" if: (A) someone else can claim you as a dependent for a tax year beginning in the same calendar year as yours, or (B) you're a student, as defined in section 152(f)(2). (d) Qualified retirement savings contributions: (1) This means the sum of: (A) contributions you made during the year to your own ABLE account (a disability savings account under section 529A); and (B) for tax years beginning before January 1, 2027 — (i) your deductible IRA contributions, (ii) your elective deferrals to a 401(k)-type plan and any elective deferral under a governmental section 457(b) deferred-compensation plan, and (iii) your voluntary employee contributions to a qualified retirement plan. (2) Reduction for certain distributions: (A) The contributions counted above are reduced, but not below zero, by distributions you received during a "testing period" from the same kinds of accounts — except money moved by a trustee-to-trustee transfer or rollover doesn't reduce it. (B) The "testing period" for a tax year covers that year, the two years before it, and the period afterward up until your filing deadline (with extensions). (C) Certain distributions are excepted and don't count against you, including early-withdrawal penalty distributions, excess-contribution corrections, and certain Roth IRA conversions. (D) If your spouse receives a distribution and you and your spouse file jointly both for the year of the distribution and for the credit year, the spouse's distribution counts as if you received it. (e) For this section, adjusted gross income is figured without regard to the foreign/territory income exclusions in sections 911, 931, and 933. (f) Investment in the contract: Claiming this credit does not stop a qualified retirement savings contribution from also counting as "investment in the contract" for other tax purposes under section 72.