When the Internal Revenue Service (IRS) announced it was boosting contribution limits for 401(k) and IRAs for 2023 back in October, it also revealed that income ranges for eligible taxpayers to claim the Retirement Savings Contributions Credit — more commonly known as the Saver’s Credit — would be raised, too.
Although the year is quickly drawing to a close, the IRS is reminding potential Saver’s Credit claimants that there is still time to make contributions to a new or existing Roth or traditional individual retirement account (IRA) plan. By doing so, claimants could take advantage of the Saver’s Credit before filing a tax return in advance of Tax Day (April 18, 2023).
However, those hoping to take advantage of the Saver’s Credit — and already participating in a workplace retirement plan (e.g., a 401(k), a 403(b), a state or local government 457 plan, or a federal Thrift Savings Plan) — will need to make elective deferrals (contributions) to those plans by Dec. 31, 2022.
Behind the Saver’s Credit
According to SmartAsset, the Saver’s Credit was designed in the early 2000s to encourage low- and moderate-income individuals to save for retirement.
“It’s kind of like an incentive for people to put money away for retirement with the additional benefit of getting a credit,” stated wealth expert Cassandra Kirby, as quoted by Business Insider.
What Is the Maximum Saver’s Credit Amount?
Depending on your income, the credit can lower your tax bill by 50%, 20% or 10% of your contribution. The maximum credit is $1,000 ($2,000 if filing jointly).
All workers who fall within certain income ranges are eligible to claim the Saver’s Credit if they are over the age of 18, are not a student and are not claimed as a dependent on another taxpayer’s return. However, as Business Insider noted, your filing status will determine the income range.
The new 2023 income limits for Saver’s Credit-eligible workers are $73,000 for married couples filing jointly (up from $68,000), $54,750 for heads of household (up from $51,000) and $36,500 for singles and married individuals filing separately (up from $34,000), per the IRS.
Qualifying retirement accounts include:
- Traditional or Roth IRAs.
- Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan.
- Voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan.
- Contributions to a 501(c)(18)(D) plan.
- Contributions made to an ABLE account for which you are the designated beneficiary.
Although the maximum credit you can receive is $1,000 ($2,000 if filing jointly), the IRS is quick to mention that the amount most people receive is much less — largely due to the influence of other deductions and credits. In 2020, U.S. taxpayers claimed a total of $1.7 billion in Saver’s Credits on about 9.4 million individual income tax returns, resulting in an average Saver’s Credit of about $186 per eligible return.
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