The Internal Revenue Service (IRS) has issued a reminder for low- and moderate-income taxpayers about the opportunity to save for retirement while also earning a special tax credit in 2024 and the following years.
This benefit, known as the Retirement Savings Contributions Credit or the Saver’s Credit, is designed to offset a portion of the first $2,000 that workers voluntarily contribute to Individual Retirement Arrangements (IRAs), 401(k) plans, and similar workplace retirement programs. Those with disabilities who are designated beneficiaries of Achieving a Better Life Experience (ABLE) accounts and make contributions to those accounts are also eligible for the Saver’s Credit.
The maximum value of the Saver’s Credit is $1,000 for individuals and $2,000 for married couples. The credit can either increase a taxpayer’s refund or reduce the tax owed, although it is affected by other deductions and credits. However, any distributions from a retirement plan or ABLE account will reduce the contribution amount used to calculate the credit.
The IRS has outlined the deadlines for contributions. For those with IRAs, they have until April 15, 2024, to set up a new IRA or add money to an existing one for 2023. Both Roth and traditional IRAs qualify. For those with workplace retirement plans, elective deferrals to these plans must be made by December 31, 2023.
To be eligible for the Saver’s Credit, taxpayers must be at least 18 years old, not claimed as a dependent, and not a full-time student. Income limits based on adjusted gross income and marital or filing status apply, with the 2023 limits being:
- Married couples filing jointly with adjusted gross incomes up to $73,000.
- Heads of households with adjusted gross incomes up to $54,750.
- Married individuals filing separately and singles with adjusted gross incomes up to $36,500.
For those unsure of their eligibility, the IRS offers the Interactive Tax Assistant tool for the Saver’s Credit. More information about the Saver’s Credit, including rules, contribution rates, and credit limits, can be found on the dedicated page on the IRS website.
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