Saving for retirement isn't always easy when you have bills knocking on your door every month. Maybe that's one reason why 1 in 4 workers have no retirement savings at all, according to research by The Motley Fool. But if you could squeeze even a few dollars out of your existing expenses every month to beef up your retirement savings, you could get rewarded for it.
The Saver's Credit, also known as the Retirement Savings Contributions Credit, is available to millions of low-and-moderate income taxpayers who save for retirement. Depending on your filing status and financial situation, you could qualify for a credit worth up to $2,000. Unfortunately, 53% of workers have no idea that this tax credit exists, according to the latest survey from Transamerica Center for Retirement Studies, so many people might be leaving money on the table every tax season.
We'll break down how the Saver's Credit works so you can determine if you qualify.
Image source: Getty Images.
What you need to know about the Saver's Credit
The Saver's Credit will be most beneficial to those who think they'll owe money during tax time. Let's say you are a freelancer, and you haven't kept up with tax payments during the year. When you file your taxes, you find out you owe $800.
That's not a small sum to pay at once, given that 31% of Americans do not have an emergency fund, according to a report from Webster Bank. If you've contributed to a qualified retirement account, like a 401(k) or Roth IRA, the Saver's Credit could come in handy.
Let's say you qualify for a $900 Saver's Credit. Your Saver's Credit would cover your tax bill, but you wouldn't get to keep the extra $100 that's left over. The Saver's Credit is nonrefundable, so you won't get a refund for any remaining dollars of the Saver's Credit that you didn't have to use.
Are you eligible for the Saver's Credit?
As with most tax benefits, there are limits to the Saver's Credit. The maximum credit you could earn is $1,000 if you are single and $2,000 if you are married filing jointly. Your exact credit will depend on your filing status and income. If your income isn't too high, you'll earn a credit worth 50%, 20%, or 10% of your retirement account contribution.
If contributing to your retirement account is one of your goals for 2024, check out the income limits in the table to see if you might qualify for the credit.
|
Amount of Your Tax Credit Based on Income and Filing Status for 2024 |
Married Filing Jointly (AGI) |
Head of Household (AGI) |
All Other Filers (AGI) |
|---|---|---|---|
|
50% of your contribution |
$0 to $46,000 |
$0 to $34,500 |
$0 to $23,000 |
|
20% of your contribution |
$46,001 to $50,000 |
$34,501 to $37,500 |
$23,001 to $25,000 |
|
10% of your contribution |
$50,001 to $76,500 |
$37,501 to $57,375 |
$25,001 to $38,250 |
|
0% of your contribution |
Over $76,500 |
Over $57,375 |
Over $38,250 |
Data source: IRS.
If you think you qualify for the Saver's Credit for 2023, you still have time to claim it. You have until April 15, 2024, to make contributions to a Roth or traditional IRA. Check out the income requirements and benefits so you can claim your 2023 Saver's Credit before it's too late.
|
Amount of Your Tax Credit Based on Income and Filing Status for 2023 |
Married Filing Jointly (AGI) |
Head of Household (AGI) |
All Other Filers (AGI) |
|---|---|---|---|
|
50% of your contribution |
$0 to $43,500 |
$0 to $32,625 |
$0 to $21,750 |
|
20% of your contribution |
$43,501 to $47,500 |
$32,626 to $35,625 |
$21,751 to $23,750 |
|
10% of your contribution |
$47,501 to $73,000 |
$35,626 to $54,750 |
$23,751 to $36,500 |
|
0% of your contribution |
Over $73,000 |
Over $54,750 |
Over $36,500 |
Data source: IRS.
Now that you know how the Saver's Credit works, you can reap the rewards of this tax credit on your 2023 or 2024 tax return if you qualify. You'll end up with a lower tax bill or no tax bill at all after the credit is applied to your balance.
Even if you don't qualify for the Saver's Credit because your income is too high, you can still celebrate your retirement savings progress. Every penny you contribute to your retirement account is a step toward a financially secure retirement.
