Retirement Savings Credit
Retirement Savings Credit
The Retirement Savings Credit, also known as the Saver’s Credit, is a non-refundable Credit/">Tax Credit available to eligible taxpayers who contribute to a retirement plan, such as a 401(k) or an IRA. The Credit is designed to incentivize low- to moderate-income individuals to save for retirement. The amount of the Credit varies based on the taxpayer’s filing status and income level, allowing for a percentage of contributions to be Credited against their Federal Income Tax Liability.
Eligibility Criteria
- Taxpayers must be at least 18 years old.
- They cannot be a full-time student.
- They cannot be claimed as a Dependent on another person’s tax return.
- Income must be below certain thresholds, which can change annually.
Credit Amount
The Credit can be 10%, 20%, or 50% of the taxpayer’s contributions, depending on income levels:
- 50% Credit for adjusted Gross Income (AGI) up to $21,750 (for 2023, married filing jointly).
- 20% Credit for AGI between $21,751 and $23,500.
- 10% Credit for AGI between $23,501 and $36,500.
Example Cases
Case 1: A married couple filing jointly contributes $4,000 to their IRA. Their AGI is $20,000. They qualify for a 50% Credit, resulting in a $2,000 Credit against their taxes.
Case 2: An individual files as head of household, contributes $2,000 to a 401(k), and has an AGI of $25,000. They qualify for a 20% Credit, resulting in a $400 Credit.
Case 3: A single filer contributes $1,000 to an IRA with an AGI of $40,000. They do not qualify for the Credit due to exceeding income limits.