This Overlooked Retirement Tax Credit Gets Better in 2023

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The saver’s credit can knock as much as $1,000 or $2,000 off your federal income tax bill, depending on whether you file an individual or joint return. Yet many folks don’t know this tax credit exists.

That’s right: Less than half of workers are aware of the saver’s credit, also known as the retirement savings contributions credit, according to a survey by the Transamerica Center for Retirement Studies. And retirees who still save money in retirement accounts may be unaware they could be eligible for the credit.

If you, too, are unfamiliar with the saver’s credit, now’s as good a time as any to get acquainted. The IRS announced on Oct. 21 that the income limits for the credit — which are a key factor in determining your eligibility for the tax break — will rise in 2023 on account of inflation.

How much is the saver’s credit worth?

The first step toward becoming eligible for the retirement savings contributions credit — as its formal name implies — is saving money in a retirement account.

The IRS says you may be able to take the tax credit for the following types of contributions:

Contributions to traditional or Roth individual retirement accounts
Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP or SIMPLE plan
Voluntary after-tax employee contributions to a qualified retirement plan (including the Thrift Savings Plan) or 403(b) plan
Contributions to a 501(c)(18)(D) plan
Contributions to an ABLE account for which you are the designated beneficiary

Rollover contributions don’t qualify, though.

The credit is worth 10%, 20% or 50% of the amount of money that you contribute to such accounts in a given year. The maximum possible contribution is $2,000 or, for married couples filing a joint return, $4,000.

That means the maximum amount of the saver’s credit itself is $1,000 or $2,000, depending on your tax-filing status. And that comes right off the top of your tax bill.

Remember, while a tax deduction only lowers your taxable income, a tax credit lowers your tax bill dollar for dollar.

What are the income limits for the saver’s credit?

The saver’s credit is for taxpayers with low to moderate incomes. To be eligible for it, your adjusted gross income (AGI) must be under a certain threshold.

For the 2023 tax year — the one for which your return is due by April 2024 — you may be eligible for the saver’s credit if your AGI is:

$73,000 or less, and your tax-filing status is married filing jointly (up from $68,000 in 2022)
$54,750 or less, and your tax-filing status is head of household (up from $51,000)
$36,500 or less, and your tax-filing status is single, married filing separately or qualifying widow(er) (up from $34,000)

If you are eligible for the saver’s credit, your AGI also determines how much the credit is worth — that is, the percentage of your retirement account contributions. For 2023, those AGI ranges are as follows:

How much the credit is worth	For married filing jointly	For heads of household	For all other tax-filing statuses
50% of your contribution	AGI is up to $43,500 (was $41,000 for 2022)	AGI is up to $32,625 (was $30,750 for 2022)	AGI is up to $21,750 (was $20,500 for 2022)
20% of your contribution	AGI is $43,501 – $47,500 (was $41,001 – $44,000)	AGI is $32,626 – $35,625 (was $30,751 – $33,000)	AGI is $21,751 – $23,750 (was $20,501 – $22,000)
10% of your contribution	AGI is $47,501 – $73,000 (was $44,001 – $68,000)	AGI is $35,626 – $54,750 (was $33,001 – $51,000)	AGI is $23,751 – $36,500 (was $22,001 – $34,000)

Let’s say your AGI is $30,000 in 2023, and your tax filing status is single. If you contribute $2,000 to an eligible account in 2023, the saver’s credit would be worth 10% of that contribution. That’s $200 off your tax bill.