Understanding the Saver’s Credit
The Saver’s Credit is an incentive for low and moderate income taxpayers to contribute to a retirement plan by providing a tax credit of up to $2,000. Taxpayers who qualify for the credit have until April 18, 2023 to earn the credit by making contributions to an IRA or Roth IRA. The saver’s credit supplements other tax benefits associated with saving for retirement to which the taxpayer may be entitled, such as deductions for IRA contributions. The following information will help you determine if you qualify for the credit.
WHO QUALIFIES FOR THE SAVER’S CREDIT?
- Taxpayers claiming the credit must be at least 18 years old.
- Taxpayers who are claimed as dependents on someone else’s return are not eligible for the credit.
- A person who is a student is not eligible for the credit. A person is considered a student if he/she was enrolled as a full-time student during any part of five calendar months during the year.
- Taxpayers who file as married filing jointly are eligible for the credit if their adjusted gross income does not exceed $68,000. This amount increases to $73,000 for 2023.
- Taxpayers who file as married filing separately or file as single are eligible for the credit if their adjusted gross income does not exceed $34,000. This amount increases to $36,500 for 2023.
- Taxpayers who file as head of household are eligible for the credit if their adjusted gross income does not exceed $51,000. This amount increases to $54,750 in 2023.
WHAT CONTRIBUTIONS QUALIFY FOR THE SAVER’S CREDIT?
- Contributions to an existing IRA or Roth IRA. The contribution must be made by the due date of the return. For 2022, the due date of the return is April 18, 2023. An extension of time to file the return does not extend the time by which the contribution may be made.
- Contributions to a new IRA or Roth IRA if the account is established, and the contribution made, by the due date of the return (see above for details).
- Contributions to work place retirement plans such as 401(k), 403(b), 457 and thrift savings plans. Other less common work place retirement plans may also qualify. However, contributions to these plans must be made by the end of the calendar year. For tax year 2022, any contributions made during the year through December 31, 2022 qualify for the credit. Any contributions made to a work place retirement plan after December 31, 2022 would qualify for the credit for 2023.
- An employee who contributes to a work place retirement plan, and is eligible for an IRA or Roth IRA may make contributions to the IRA or Roth IRA through April 18, 2023.
- Contributions to an ABLE account by an eligible person who is disabled and the designated beneficiary of the ABLE account.
- The amount of any contribution eligible for the credit will be reduced by distributions received by the taxpayer from a retirement or ABLE account. To determine the credit for 2022, the eligible contributions must be reduced by any distributions received by the taxpayer after 2019 and before the due date of the 2022 return, including extensions.
WHAT IS THE AMOUNT OF THE CREDIT?
- The maximum amount of the saver’s credit is $1,000 or $2,000 for taxpayers married filing jointly.
- The amount of the actual credit to which a taxpayer may be entitled can be impacted by the deductions and other credits claimed by the taxpayer on the return.
Although there are restrictions on who is eligible for the credit, the credit can help low and moderate income taxpayers save for retirement. The IRS reports that for 2020, the latest year for which data is available, $1.7 billion of saver’s credit was claimed on 9.4 million individual tax returns.