The 2023 Saver’s Credit Is Available to More Taxpayers Than Ever

(Dan Caplinger)

Everyone can benefit from saving for retirement. But especially when times are hard, it’s hard to find money to set aside. Whenever you can get help, it’s worth taking advantage of it.

The federal government is concerned about making sure that low- 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 millions of people increase their savings. And thanks to inflation adjustments, more people will be able to take advantage of Saver’s Credit in 2023 than ever before.

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How Saver’s Credit works

The idea behind Saver’s Credit is simple. If you contribute to an IRA, 401(k), or other retirement plan, you may qualify for tax credits that you can use to reduce your tax bill. The credit applies up to $2,000 in retirement contributions.

However, not everyone meets the requirements. You must be 18 years of age or older and not a full-time student or tax dependent. In addition, there are income limits that apply not only to receiving Saver’s Credit, but also to determining the amount of credit you will receive. Depending on your income, you can get back anywhere between 10% and 50% of your contribution in the form of credit.

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Saver’s 2023 income limit and loan amount

This chart shows how much credit you can apply for, based on your credit status and adjusted income:

Interest rate

Married or Divorced

Head of household

Married Join

Participation is 50%

$0 to $21,750

$0 to $32,625

$0 to $43,500

20% contribution

$21,751 to $23,750

$32,626 to $35,625

$43,501 to $47,500

10% contribution

$23,751 to $36,500

$35,626 to $54,750

$47,501 to $73,000

These limits are much higher than in 2022. For example, the maximum income for a married couple to qualify for the Saver’s Credit in 2022 is $68,000 — $5,000 less than in 2023.

To see how this works, let’s take a simple example. Say you’re married, file a joint return, and decide to allocate $1,500 to a Roth IRA. If your gross income is $50,000, you’ll get a 10% credit, so the amount is $150. But if your income is $40,000, you qualify for a 50% larger credit, totaling $750 in tax breaks.

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Also, say your spouse is also putting money into a retirement account. Each spouse’s contribution is eligible, so you can double your savings by contributing as a couple.

It is a victory

Of course, the Saver’s Credit provides an additional incentive for those who use a tax-advantaged retirement account to increase their long-term savings. If you choose a traditional IRA or 401(k) account for your retirement savings, you may still be eligible for tax deductions that could save you more at tax time. And if you prefer a Roth IRA, you’ll get the same tax-free treatment for retirement withdrawals that everyone else gets from these accounts.

Because low-income taxpayers don’t get much of the deduction for traditional retirement account contributions, however, the Saver’s Credit often represents the biggest discount available. they are. However, many taxpayers who qualify don’t even know the Saver’s Credit exists, let alone that it can put hundreds or thousands of dollars back in your pocket.

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When money is tight and you’re trying to get ahead with your financial plan, you’ll get the full value of what Saver’s Credit brings to the table.

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