Everyone can benefit from saving for retirement. But especially when times are tough, it’s hard to find the money to set aside. Anytime you can get help, it’s worth taking advantage of it.
The federal government has been concerned about making sure low-income and middle-income Americans are prepared for retirement. That’s why lawmakers created the Retirement Savings Contributions Credit, also known as the Saver’s Credit, to help give millions of people a boost in their savings efforts. And thanks to inflation adjustments, more people will be able to take advantage of the Saver’s Credit in 2023 than ever before.
How the Saver’s Credit works
The idea behind the Saver’s Credit is quite simple. If you contribute to an IRA, 401(k), or other qualifying retirement plan, you can qualify for a tax credit that you can use to reduce your tax bill. The credit applies for up to $2,000 in retirement contributions.
However, not everyone qualifies for the credit. You need to be 18 or older and not be a full-time student or dependent for tax purposes. Moreover, there are income limits that apply not just to receiving the Saver’s Credit at all, but to determining the amount of the credit you’ll receive. Depending on your income, you could get anywhere between 10% and 50% of your contributions back in the form of a credit.
The 2023 Saver’s Credit income limits and credit amounts
This chart shows how big a credit you can claim, based on your filing status and your adjusted gross income:
Single or Married Separate
Head of Household
50% of contribution
$0 to $21,750
$0 to $32,625
$0 to $43,500
20% of contribution
$21,751 to $23,750
$32,626 to $35,625
$43,501 to $47,500
10% of contribution
$23,751 to $36,500
$35,626 to $54,750
$47,501 to $73,000
These limits are considerably higher than they were in 2022. For instance, the maximum income for a married couple to qualify for the Saver’s Credit in 2022 was $68,000 — $5,000 less than it’ll be in 2023.
To see how this works, let’s take a simple example. Say you’re married, filing a joint return, and decide to set aside $1,500 in a Roth IRA. If your adjusted gross income is $50,000, then you’ll qualify for a 10% credit, so the amount will be $150. But if your income is $40,000, then you’ll qualify for a much larger 50% credit, making the tax break worth $750.
In addition, say your spouse also sets aside money in a retirement account. Contributions from each spouse are eligible, so you can double up on your tax savings by having both spouses participate.
It’s a win-win
To be clear, the Saver’s Credit provides extra incentives on top of what’s already available for those who use tax-favored retirement accounts to boost their long-term savings. If you choose a traditional IRA or 401(k) account for your retirement savings, you’ll still potentially qualify for a tax deduction that could save you even more at tax time. And if you prefer a Roth IRA, you’ll get the same tax-free treatment on withdrawals in retirement that everyone else gets from those accounts.
Because low-income taxpayers don’t get as much benefit from the deductions they earn from traditional retirement account contributions, however, the Saver’s Credit often represents the biggest tax break available to them. Yet many taxpayers who are eligible don’t even know that the Saver’s Credit exists, let alone that it can put hundreds or even thousands of dollars back in your pocket.
When money’s tight and you’re trying to look ahead with your financial planning, you’ll appreciate the full value of what the Saver’s Credit brings to the table.
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