Savings Credit 2023 is available to more taxpayers than ever

Everyone can benefit from retirement savings. But especially when times are tough, it’s hard to find the money to put aside. Anytime you can get help, it’s worth taking advantage of.

The federal government has been concerned with ensuring that low-income and middle-income Americans are ready for retirement. That’s why lawmakers created the Retirement Savings Contribution Credit, also known as the Savings Credit, to help give millions of people a boost in their savings efforts. And thanks to inflation adjustments, more people will be able to take advantage of savings credit in 2023 than ever before.

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How the Savings Credit works

The idea behind the saver’s credit is quite simple. If you contribute to an IRA, 401(k), or other qualified retirement plan, you may qualify for a tax credit that you can use to reduce your tax bill. The credit applies up to $2,000 in pension contributions.

However, not everyone is entitled to credit. You must be 18 or older and not a full-time student or dependent for tax purposes. In addition, there are income limits that apply not only to receiving credit from the saver, but also to determining the amount of credit you will receive. Depending on your income, you could recover between 10% and 50% of your contributions in the form of a credit.

Income ceilings and credit amounts of Crédit Épargnant 2023

This table shows the amount of credit you can claim, depending on your filing status and your adjusted gross income:

Credit percentage

Single or Married Separated

head of household

Married Spouse

50% contribution

$0 to $21,750

$0 to $32,625

$0 to $43,500

20% contribution

$21,751 to $23,750

$32,626 to $35,625

$43,501 to $47,500

10% contribution

$23,751 to $36,500

$35,626 to $54,750

$47,501 to $73,000

Data source: IRS.

These limits are considerably higher than they were in 2022. For example, the maximum income for a married couple to qualify for the savings credit in 2022 was $68,000, which is $5,000 less than in 2023.

To see how this works, let’s take a simple example. Say you’re married, file a joint return, and decide to set aside $1,500 in a Roth IRA. If your adjusted gross income is $50,000, you will be entitled to a 10% credit, so the amount will be $150. But if your income is $40,000, you’ll qualify for a much larger credit of 50%, making the tax relief worth $750.

Also, let’s say your spouse also puts money aside in a retirement account. Each spouse’s contributions are eligible, so you can double your tax savings by having both spouses participate.

It’s a win-win

To be clear, Savings Credit offers additional incentives on top of what is already available to those using tax-advantaged retirement accounts to increase their long-term savings. If you choose a traditional IRA or 401(k) account for your retirement savings, you’ll still potentially qualify for a tax deduction that could save you even more at tax time. And if you prefer a Roth IRA, you’ll get the same tax-free treatment on retirement withdrawals that everyone gets from these accounts.

Since low-income taxpayers don’t benefit as much from the deductions they earn on traditional retirement account contributions, the savings credit often represents the biggest tax break available to them. Yet many eligible taxpayers don’t even know savings credit exists, let alone that it can earn you hundreds or even thousands of dollars.

When money is tight and you try to anticipate your financial planning, you will appreciate the full value of what savings credit brings to the table.

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