You can get IRS tax credits of up to $2000 by contributing to your retirement savings or an Achieving a Better Life Experience (ABLE) account. These credits are available to eligible taxpayers and can significantly reduce the amount of taxes you owe while encouraging you to save for your future. If you meet the requirements, the IRS will credit 10%, 20%, or even 50% of your contributions back to you. Let’s dive into the details to see how you can qualify.
If you are managing retirement finances, you might also be interested in spousal Social Security benefits: 4 things retired couples should know to optimize your household income.
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IRS tax credits for retirement savings
Tax credits are designed to help people who contribute to
- Employer sponsored retirement plans, such as 401(k) or 403(b) plans.
- Traditional or Roth individual retirement accounts (IRAs).
- ABLE accounts if you are the designated beneficiary.
Depending on your income you may be eligible for a credit equal to 10%, 20% or 50% of your contributions. You can get a maximum credit of $1,000 if you are single or $2,000 if you are married and file jointly.
Who may be eligible?
To be eligible for these IRS tax credits you must meet the following requirements
- Must be at least 18 years old.
- Must not be claimed as a dependent on someone else’s tax return.
- Must not be a full-time student.
Your adjusted gross income (AGI) must be below certain limits depending on your filing status.
The table below simplifies the details
| Credit rate | Married Filing Jointly | Head of households | All Other Filers |
| 50% of your contribution | $46,000 or less | $34,500 or less | $23,000 or less |
| 20% of your contribution | $46,001 – $50,000 | $34,501 – $37,500 | $23,001 – $25,000 |
| 10% of your contribution | $50,001 – $76,500 | $37,501 – $57,375 | $25,001 – $38,250 |
| 50% (not eligible) | Over $76,500 | Over $57,375 | Over $38,250 |
Key details about the credit
- Qualified contributions include contributions made to retirement plans like IRAs and ABLE accounts.
- Rollover contributions do not count.
- Recent withdrawals made from retirement plans may reduce your qualified contributions.
How to claim the IRS tax credit
To claim credit fill out Form 8880 Credit for Qualified Retirement Savings Contributions and submit it with your tax return (Form 1040). The IRS will use this form to calculate your credit on the basis of your income and contributions.
Deadlines for contributions
IRA contributions
You can make contributions to a traditional or Roth IRA for 2023 until 15th April 2024.
Employer sponsored plans
Contributions to 401(k) or 403(b) plans should be made by 31st December 2023.
List of common retirement plans eligible for the credit:
- 401(k) plans.
- 403(b) plans for public school employees and nonprofits.
- Government 457 plans for state and local employees.
- Thrift Savings Plans (TSP) for federal employees.
if you’re looking for additional ways to manage your finances, check out how to claim the child tax credit for children living abroad for another opportunity to maximize your tax savings
Frequently Asked Questions
1. Can everyone get these IRS tax credits?
No, it depends on your income and filing status.
2. What is the maximum credit I can get?
The maximum is $1,000 if you are single and $2,000 if you are married or filing jointly.
3. What happens if I make a withdrawal from my IRA or retirement plan?
withdrawals may reduce your eligible contributions which may reduce the credit you can claim.
4. Do small contributions count?
Yes, small contributions can count for a credit. but the amount of the credit depends on your income and how much you contribute.
Final words
The IRS tax credit for retirement savings is a great way to save your taxes while planning your future. by contributing to a retirement account or ABLE account, you can reduce your tax bill and increase your savings.