Fresno, California – Tax filers have an opportunity to benefit from a tax break known as the retirement saver’s credit for the 2023 tax year. Despite this opportunity, the IRS estimates that only a small percentage—5.7%—of taxpayers claimed the saver’s credit for their 2021 taxes.
The retirement saving contribution credit, also known as the saver’s credit, aims to assist low- to moderate-income individuals in offsetting a portion of the funds they contribute to individual retirement accounts (IRAs), 401(k) plans, or other workplace retirement plans. This incentive provides a dollar-for-dollar reduction of taxes owed, potentially lowering the tax bill or increasing the tax refund.
Individuals can claim up to 50% of retirement contributions, with maximum credits of $1,000 for single filers or $2,000 for married couples filing jointly. However, there are income limitations for claiming this credit. For 2023, adjusted gross incomes must not exceed $21,750 for single filers or $43,500 for married couples to qualify for the 50% credit. The credit percentages decrease as incomes rise, with total phase-outs occurring at $36,500 for individuals and $73,000 for joint filers.
Despite the benefits of the saver’s credit, many eligible individuals do not claim it due to several reasons. A significant factor is that the credit is non-refundable, meaning individuals must have a tax liability to benefit from it. Additionally, awareness of the credit is low, with fewer than half of U.S. workers being aware of its existence, according to a recent survey.
In 2027, the saver’s credit is set to transition into a saver’s match from the federal government, potentially addressing some of the current restrictions. Nevertheless, barriers to retirement savings still exist, with experts highlighting the importance of employer-sponsored retirement plans with automatic contributions as an effective way to encourage retirement savings.
Despite efforts to improve access to retirement plans, many Americans still lack access to workplace retirement options. This highlights the ongoing challenges in promoting retirement savings and the need for continued efforts to ensure financial security for all individuals.