Do you want to get paid for contributing to your IRA or other retirement plans? Well, you can because the IRS will pay you to save for retirement.
There is a little-known tax rule that has been around since 2002 called the Retirement Savings Contributions Credit (Saver’s Credit). This tax credit essentially pays you to put money into your IRA, Roth IRA, 401k, TSA, and most other retirement plans. Here’s a quick summary of how it works:
Eligibility
You’re eligible for the credit if you’re:
- Age 18 or older,
- Not claimed as a dependent on another person’s return, and
- Not a student.
Credit Amount
As with most tax credits, the amount is based on your adjusted gross income (AGI) in the year that you contribute. The maximum amount of the credit is 50% of the amount that you contribute to your retirement plan. The maximum contribution amount that can qualify for the credit is $2,000, making the maximum credit $1,000. Here is an example from the IRS website:
Jill, who works at a retail store, is married and earned $41,000 in 2021. Jill’s spouse was unemployed in 2021 and didn’t have any earnings. Jill contributed $2,000 to her IRA for 2021. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $39,000. Jill may claim a 50% credit of $1,000 for her $2,000 IRA contribution on her 2021 tax return.
The following tables show how much of a credit that you are eligible for:
2022 Saver’s Credit
| Credit Rate | Married Filing Jointly | Head of Household | All Other Filers* |
| 50% of your contribution | AGI not more than $41,000 | AGI not more than $30,750 | AGI not more than $20,500 |
| 20% of your contribution | $41,001- $44,000 | $30,751 – $33,000 | $20,501 – $22,000 |
| 10% of your contribution | $44,001 – $68,000 | $33,001 – $51,000 | $22,001 – $34,000 |
| 0% of your contribution | more than $68,000 | more than $51,000 | more than $34,000 |
*Single, married filing separately, or qualifying widow(er)
2021 Saver’s Credit
| Credit Rate | Married Filing Jointly | Head of Household | All Other Filers* |
| 50% of your contribution | AGI not more than $39,500 | AGI not more than $29,625 | AGI not more than $19,750 |
| 20% of your contribution | $39,501 – $43,000 | $29,626 – $32,250 | $19,751 – $21,500 |
| 10% of your contribution | $43,001 – $66,000 | $32,251 – $49,500 | $21,501 – $33,000 |
| 0% of your contribution | more than $66,000 | more than $49,500 | more than $33,000 |
*Single, married filing separately, or qualifying widow(er)
For those that are eligible, it is like getting a match from the government on your contribution. Every little bit helps.
Let me know if you have any questions and Happy Holidays!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
