Saving for retirement may not be the most exciting goal on your to-do list but might come in handy when you file your 2022 tax returns. Your retirement-account contributions could put you in the running for a Saver's Credit. This tax benefit allows low-to-moderate income earners to earn a credit worth up to $2,000 for contributing to a qualified retirement account.
The clock is ticking, so here are a few steps you can take now to determine if you qualify for the 2022 Saver's Credit.
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Unlocking the benefits of the Saver's Credit
The Saver's Credit may not be as popular as other tax credits but can still work wonders on your tax return. If you qualify for the credit, you could slash your current-year tax bill or wipe it away completely.
Let's say your tax bill for 2022 is $1,500 and your Saver's Credit is worth $500. After you apply the credit to your tax bill, you'd only owe $1,000. But if your tax bill is $500 and your credit is worth $500, you won't owe Uncle Sam a penny for 2022.
The Saver's Credit is nonrefundable, so you won't end up with a tax refund if your credit is more than what you owe. For instance, if your tax bill is $500 and your credit is $900, you'd only get the $500 applied to your bill. The extra $400 won't end up in your pocket.
If you've done any side gigs or didn't have enough money taken out of your paycheck, you could end up owing money. The Saver's Credit can make your last-minute tax filing less stressful.
Claim the 2022 Saver's Credit before it's too late
Before you get too excited about the Saver's credit, there are a few things to keep in mind. First, you need to contribute to a qualified retirement account. The deadline has already passed to make contributions to employer-sponsored retirement accounts, like a 401(k), for 2022. But you still have time to contribute to an individual retirement account like a Roth or traditional IRA.
For 2022, you can contribute up to $6,000 if you're under 50. Your contribution cap goes up to $7,000 if you're 50 and over. If you're thinking about contributing to an IRA, make sure your account is funded by the tax filing deadline, which is April 18, 2023, to qualify for the 2022 Saver's Credit.
Everyone won't qualify for the Saver's Credit. If someone else is claiming you on their tax return, you won't be eligible. Also, students can't claim it.
Calculate your potential savings
If you're a single tax filer, the Saver's Credit is worth up to $1,000. The credit can be as much as $2,000 if you're married filing jointly. Your credit may be 50%, 20%, or 10% of your retirement-account contribution. Your exact credit amount is based on your adjusted gross income (AGI) and filing status.
Let's say you earned $20,000 as a 35-year-old single filer and contributed $2,000 to an eligible retirement account for 2022. The value of your saver's credit would be $1,000. If you contributed the maximum amount to an IRA for 2022, your credit would still be worth $1,000, due to the cap.
Take a look at the AGI ranges below to determine your potential Saver's Credit.
|
Amount of Your Tax Credit Based on Income and Filing Status for 2022 |
Married Filing Jointly (AGI) |
Head of Household (AGI) |
All Other Filers (AGI) |
|---|---|---|---|
|
50% of your contribution |
$0 to $41,000 |
$0 to $30,750 |
$0 to $20,500 |
|
20% of your contribution |
$41,001 to $44,000 |
$30,751 to $33,000 |
$20,501 to $22,000 |
|
10% of your contribution |
$44,001 to $68,000 |
$33,001 to $51,000 |
$22,001 to $34,000 |
|
0% of your contribution |
Over $68,000 |
Over $51,000 |
Over $34,000 |
Data source: IRS.
Get rewarded for your retirement contributions
If you've been on the fence about making retirement-account contributions, this may be the perfect time to make a move. Not only can your contribution boost your retirement balance, but it can also position you for the Saver's Credit. The more money you save during tax time, the more money you'll have to fund other goals.
