If the burdens of saving enough for retirement and paying your taxes are getting you down, the saver’s tax credit might be able to lift your spirits.
Tax credits are one of the biggest ways in which federal and state governments are able to ease the financial strains put on taxpayers. One of the most well-known of these credits — owing largely to coverage of its uncertain future — is the child tax credit, which has a federal version and state-level ones in some places. It’s far from the only credit, though, and if you’ve been diligent or generous with your retirement savings throughout the year, the saver’s credit can net you back a portion of that money come tax season.
When it comes to your financial wellbeing, every little bit counts, especially with the amount needed to save for a comfortable retirement. According to a Federal Reserve survey of 2022 data, by the traditional retirement age of 65, Americans had an average of $609,000 saved up, with the median amount being $200,000. Estimates from Fidelity recommended that people have around 10 times their annual salary saved by age 67 to comfortably maintain their current lifestyle.
Read on to find out how the saver’s credit might be able to help you claw back a little bit of that money to put away for retirement. For more, check out our breakdown of other credits and find out all the details about the solar tax credit.
What is the saver’s credit?
Officially known as the Retirement Savings Credit, this credit provides taxpayers under certain income thresholds with an offset of their tax dues based on the amount of money they put into eligible retirement plans.
The credit is nonrefundable, meaning that the amount you qualify for can only decrease the amount you might owe in taxes. It can’t increase the amount you are owed as a refund, as parts of the child tax credit can.
Who is eligible for the saver’s credit?
The IRS stipulates that adults who are not students and are not someone else’s dependent are eligible for the saver’s credit. This means you must be at least 18 years old and not meet the standard to be considered a student: You were either enrolled full-time at a school or “took a full-time, on-farm training course given by a school or a state, county, or local government agency” for any part of five calendar months out of the year.
Parents or guardians can claim you as a dependent if you are younger than 19 by the end of the tax year, or 24 if you are still a full-time student, and you lived with them for at least half the year.
How much money does the saver’s credit get me?
The amount you get from the saver’s credit is calculated as a percentage of the amount you saved for retirement during the tax year. The percentage is determined by your gross adjusted income level, meaning the amount you made minus the amount you saved for retirement.
The different income brackets start at 50% for the lowest earners, before decreasing to 20% and 10% for higher earners. The amounts needed to be eligible for each bracket vary depending on what your filing status is: married filing jointly, filing as a head of household, or any other filing types. Above certain income levels, however, you will no longer be eligible for the saver’s credit: if you make more than $76,500 while filing jointly; if you make more than $57,375 as a head of household; or for all other filing types, if you make more than $38,250.
A full chart breaking down each saver’s credit income bracket is available on the IRS website.
For more, find out which electric vehicles will help net you an EV tax credit.
