Taxes: Do I qualify for the retirement savings contribution credit?

• Americans save an average of $141,524 for retirement. 
• Some savings contributions may qualify for tax relief.
• Learn about the retirement savings contribution credit.

Do you qualify for the retirement savings contribution credit? Saving for retirement? According to a Vanguard report titled, «How America Saves», in 2022 the average American had a retirement savings of $141,524.

In the United States, most seniors retire at age 65. At this age, some may qualify for a variety of tax relief programs such as the retirement savings contribution credit. Learn what it is and how to claim it!

What is the retirement savings contribution credit?

This is one of the least known by taxpayers. According to a survey by the Transamerica Center for Retirement Studies, only 12% of the US population with an income of less than $50,000 per year is aware of this credit.

If an individual makes certain types of contributions to an employee retirement savings plan, IRA, or Achieving a Better Life Experience (ABLE) account, then they may be eligible to claim this tax credit.

Who qualifies?

If a taxpayer wants to claim this credit, they will need to show that they are 18 years of age or older, that they are not in school full-time, and that they are not listed as a dependent on another taxpayer’s tax return.

To qualify for this credit, you must also have made retirement contributions during the tax year as well as meeting the annual gross income requirements. For this, you will need to have a 401(k), 403(b), 457 or IRA plan.

Adjusted gross income for the retirement savings contribution credit

The Internal Revenue Service has provided the adjusted gross income for the retirement savings contributions credit taking into account factors such whether you are filing as an individual, head of household or married couple.

This limit is $68,000 for married couples filing a joint tax return, $51,000 for heads of household and $34,000 for all other taxpayers.

How much can you save?

The retirement savings contribution credit grants a maximum of $2,000 for married individuals filing a joint tax return and $1,000 for all other eligible taxpayers. With this credit, people have the opportunity to reduce the amount of taxes they pay annually.

The credit is calculated based on contributions made a retirement account. Taxpayers are eligible for a 50% credit if they have an adjusted gross income of $20,500, for individual filers, $30,750 for heads of household or $41,000 for married couples filing jointly. To learn more about this credit, visit the official IRS website.