Saving for retirement, don't forget to claim the saver's credit

If you've started saving for your retirement, it's not only good for your future, but also for the present. The federal government offers a tax credit to encourage low- and middle-income Americans to save more. We call this credit the Retirement Savings Credit or Savings Credit. This credit is available to almost anyone who has contributed to a 401(k) or IRA.

So if you also made such contributions, but weren't aware of this credit, or how to claim the saver's credit, don't worry. In this article, we tell you all about this credit, including what it is, eligibility requirements, how much to expect, and how to claim it.

Savings credit, what is it?

As mentioned above, this is a tax credit that encourages low- and moderate-income households to save for retirement. This credit can help taxpayers reduce their tax payable, or it could even result in a refund to taxpayers. A taxpayer contributing to a retirement account can claim the savings credit up to $1,000 ($2,000 if married and filing jointly).

According to the IRS, this credit is available to those "who make qualifying contributions to your IRA or employer-sponsored retirement plan. Additionally, you may be eligible for a credit for contributions to your Achieving a Better Life Experience (ABLE) account, if you are the designated beneficiary.”

Who are all eligible?

You must meet the eligibility requirements below to be eligible for the Saver's Credit:

Be 18 or older. Must not be claimed as a dependent by anyone upon return. Must not be a student.

Simply meeting the above conditions will not qualify you for the savings credit unless you make eligible contributions to your savings fund retirement. It should be noted that the contributions you make at retirement must be fresh money. In other words, rollovers from an existing account will not count towards the saver's credit.

In addition, you must meet the adjusted gross income limits for the year for which you wish to claim the credit. The IRS sets AGI limits each year.

For example, you will not be eligible for Crédit Épargnant 2023 if your adjusted gross income is higher:

$73,000 for a married co-filer. $54,750 for the declaring head of household. $36,500 for any other filing status.

Visit this link for more details on eligibility requirements and income limits.

In addition to the above requirements, you must also meet the contribution deadlines to not only qualify, but also to claim the Saver Credit.

Typically, contributions to 401(k) plans and other savings credit-eligible retirement accounts are due before the end of the calendar year. Taxpayers, however, have until the tax filing deadline, which is usually April, to make eligible savings credit contributions.

Thus, this year, taxpayers have until April 18, 2023 to pay the pension contributions that will allow them to benefit from the Savings Credit on their 2022 tax return.

How much could you get?

You can claim the Saver's Credit up to $1,000 ($2,000 if you're married and filing jointly). However, the amount of the credit depends on your "adjusted gross income reported on your Series 1040 return".

Depending on your filing status and adjusted gross income, you may be eligible to claim 50%, 20%, or 10% of your total retirement contribution. The maximum contribution amount eligible for the credit is $2,000 ($4,000 if you are married and filing jointly).

So if you are eligible to claim 50% and your maximum contribution is $2,000, then you can claim $1,000 in savings credit. Visit this link for more details on Saver's Credit rates for different types of filers.

How to Claim Saver's Credit

Now that you know what Saver's Credit is, what its requirements are, and how much you could get, the last important detail you need to know is how to claim Saver's Credit.

If you meet the eligibility requirements, as well as the income limits, you must use IRS Form 8880 ("Credit for Qualified Retirement Savings Contributions") to claim the saver's credit. It is...