Are you contributing to a retirement plan or an IRA? If so, you might be eligible for a valuable tax credit known as the Saver’s Credit. Their credit is designed to encourage low- to moderate-income taxpayers to save for retirement. In their article, we will dive deep into what their credit is, who's eligible, how much one can claim, and how to determine the appropriate credit rate based on your adjusted gross income (AGI).

1. What is the Saver’s Credit?

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The Retirement Savings Contributions Credit, commonly referred to as the Saver’s Credit, is a tax incentive aimed at motivating individuals to save for their retirement. The credit is a percentage of your eligible contributions to IRA or employer-sponsored retirement plans. Starting 2018, contributions to an Achieving a Better Life Experience (ABLE) account also qualify for the credit if you're the designated beneficiary.

2. Eligibility for the Credit

To qualify for the Saver’s Credit:

• You must be 18 years or older.

• Cannot be claimed as a dependent on someone else’s tax return.

• Cannot be a student for a certain duration of the tax year. This means you were not enrolled as a full-time student at a school for at least 5 calendar months of the tax year. Note that online-only courses and correspondence schools do not qualify under their definition.

• Reference Form 8880, Credit for Qualified Retirement Savings Contributions, for detailed information.

3. Calculating the Credit Amount

The Saver’s Credit rate can be 50%, 20%, or 10% based on your AGI and the contributions you make to:

• Traditional or Roth IRA.

• Elective salary deferral contributions to specific employer-sponsored plans.

• After-tax contributions to qualified retirement plans, including the federal Thrift Savings Plan.

• Contributions to a 501(c)(18)(D) plan.

• Contributions to an ABLE account (from 2018).

However, rollover contributions aren't eligible. Also, any recent distributions from a retirement plan, IRA, or ABLE account can reduce your eligible contributions.

The maximum contribution amount that may be counted for the credit is $2,000 ($4,000 for joint filers), meaning the maximum credit one can claim is $1,000 ($2,000 for joint filers).

4. 2023 Savers Credit Rate and AGI Limits

The credit rate is dependent on your AGI. Here's how you can determine your rate for 2023:

Credit Rate	Married Filing Jointly	Head of Household	All Other Filers*
50%	AGI ≤ $43,500	AGI ≤ $32,625	AGI ≤ $21,750
20%	$43,501 - $47,500	$32,626 - $35,625	$21,751 - $23,750
10%	$47,501 - $73,000	$35,626 - $54,750	$23,751 - $36,500
No credit	AGI > $73,000	AGI > $54,750	AGI > $36,500

**Single, married filing separately, or qualifying widow(er)

5. Practical Example

Consider Jill, who worked at a retail store in 2021. Being married with an income of $41,000 and a spouse without any earnings, they contributed $2,000 to their IRA. Their contribution brought their AGI down to $39,000. As per the Savers Credit rate for their AGI, they can claim a 50% credit. Therefore, they get a credit of $1,000 for their $2,000 IRA contribution for the tax year 2021.

Conclusion

The Retirement Savings Contributions Credit is a significant incentive for those looking to enhance their retirement savings. By understanding the eligibility criteria and leveraging the benefits, taxpayers can ensure they get the maximum credit available to them, ultimately promoting a secure financial future. Always consult with a tax expert to fully optimize these benefits.