Hey there! 😊 We know a lot of us have been spending due to Thanksgiving, Christmas, travel, and such. However, good news for all of us who remember to save for retirement. The IRS wants to remind our awesome low-and moderate-income friends that they can start saving for retirement now and maybe even score a special tax credit in 2024 and beyond!
Say hello to the Retirement Savings Contributions Credit, also known as the Saver’s Credit. This gem helps offset part of the first $2,000 you willingly contribute to your Individual Retirement Arrangements (IRAs), 401(k) plans, and other cool workplace retirement programs. Oh, and it’s not just for the super savers – if you have a disability and contribute to an Achieving a Better Life Experience (ABLE) account, you’re in on the action too. Need more info on ABLE accounts? Check out Publication 907, Tax Highlights for Persons With Disabilities.
Now, drumroll, please – the maximum Saver’s Credit is a sweet $1,000 (or $2,000 if you’re married. Yes, Uncle Sam gives you many good things just from being married, in terms of taxation!). It can jazz up your refund or cut down on the tax you owe, but keep in mind it plays nice with other deductions and credits. Heads up: any moolah you pull from your retirement plan or ABLE account affects the contribution amount we use to calculate the credit.
Are there any contribution deadlines?
Like how all good things have an end, let’s talk deadlines, folks! If you’re an IRA guru, you’ve got until April 15, 2024, aka the due date for filing your 2023 return, to start a new IRA or throw some cash into your existing one. Both Roth and traditional IRAs are on the party guest list.
For our workplace retirement plan wizards, you still have time to make those qualifying contributions and snag the Saver’s Credit on your 2023 tax return. Just remember, contributions to workplace retirement plans need to be in by December 31 for plans like the 401(k), 403(b), and more. Peep the instructions to Form 8880, Credit for Qualified Retirement Savings Contributions, for the scoop on qualifying plans and extra deets.
Ready for the eligibility scoop? To join the Saver’s Credit club, you’ve gotta be:
- 18 or older
- not claimed as a dependent, and
- not rocking the full-time student status.
How do I know if I’m a student?
Easy peasy. You were a student if during any part of 5 calendar months of the tax year, you:
- Were enrolled as a full-time student at a school, or
- Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
Just to clear things up and keep it friendly: when we say “school,” we’re including cool places like technical, trade, and mechanical schools. 🛠️✨ But, heads up, we’re not including on-the-job training courses, correspondence schools, or those internet-only courses. Let’s keep the learning vibes positive and focused! 📚🌟
Oh, and there are income limits based on your adjusted gross income and your marital or filing status. Here’s the 2023 lowdown:
- Married couples filing jointly: up to $73,000
- Heads of household: up to $54,750
- Married individuals filing separately and singles: up to $36,500
So, let’s make saving for retirement a breeze and snag that Saver’s Credit! 🌟💰
Let’s chat about the nitty-gritty of the credit – it’s a good one! Depending on your adjusted gross income from that trusty Form 1040 series return, the credit can be a stellar 50%, 20%, or 10% of some pretty cool stuff:
✔️ Your contributions to a traditional or Roth IRA
✔️ The elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan – quite the lineup!
✔️ Voluntary after-tax employee contributions to a snazzy qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan
✔️ Contributions to a 501(c)(18)(D) plan – if that’s your thing
✔️ Contributions to an ABLE account for which you’re the designated beneficiary (starting from 2018, we’re in the future!)
Just a heads up – rollover contributions won’t make the credit cut. And if you’ve recently cashed out from a retirement plan, IRA, or ABLE account, that might trim down your eligible contributions a bit.
Now, here’s the fun part – the maximum contribution amount that dances into credit territory is $2,000 ($4,000 for the power couples filing jointly), giving you a shot at a max credit of $1,000 ($2,000 if you’re rocking the joint filing vibe). Check out the chart below to crunch the numbers for your very own credit magic!
2023 Saver’s Credit
| Credit Rate | Married Filing Jointly | Head of Household | All Other Filers* |
|---|---|---|---|
| 50% of your contribution | AGI not more than $43,500 | AGI not more than $32,625 | AGI not more than $21,750 |
| 20% of your contribution | $43,501- $47,500 | $32,626 – $35,625 | $21,751 – $23,750 |
| 10% of your contribution | $47,501 – $73,000 | $35,626 – $54,750 | $23,751 – $36,500 |
| 0% of your contribution | more than $73,000 | more than $54,750 | more than $36,500 |
*Single, married filing separately, or qualifying widow(er)
Need an example? Let’s say our imaginary friendly Jill – she’s a rockstar at a retail store, married, and pulled in $41,000 in 2021. Her spouse took a break from work that year. Jill tossed $2,000 into her IRA, bringing down their joint adjusted gross income to $39,000. Drumroll, please! Jill’s claiming a 50% credit of $1,000 for her $2,000 IRA contribution on her 2021 tax return. Go, Jill! 💪✨ Keep shining, credit wizards! 🌟
If you have any questions, we’re here to help. Happy saving!