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Tax Tip: Save for Retirement, Save on Tax!

Tax payers can reduce or defer tax by contributing to a retirement account.

Certain taxpayers’ contributions could also qualify them for a tax credit.

Eligible workers still have time to make qualifying retirement contributions and get the Saver’s Credit on their 2022 tax return.

Who’s eligible for the credit?

You’re eligible for the credit if you’re:

  1. Age 18 or older,
  2. Not claimed as a dependent on another person’s return, and
  3. Not a student.

Taxpayers have until April 18, 2023 – the due date for filing their 2022 return – to set up a new IRA or add money to an existing IRA for 2022. Both Roth and traditional IRAs qualify.

Amount of the credit

Depending on your adjusted gross income, the amount of the credit is 50%, 20% or 10% of:

  • – contributions you make to a traditional or Roth IRA,
  • – elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan,
  • – voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan,
  • – contributions to a 501(c)(18)(D) plan, or
  • – contributions made to an ABLE account for which you are the designated beneficiary (beginning in 2018).

The IRA contribution limit for 2022 is $6,000 ($7,000 if you’re age 50 or over). They increase to $6,500 ($7,500 if you’re age 50 or over) for 2023.

Any employee sponsored retirement plan contributions have to be made before the last day of the year to qualify. Although it is too late to make contributions to impact your 2022 tax return, this is a great planning tool for 2023!

The SIMPLE IRA limit for 2023 is $15,500 ($19,000 if you’re age 50 or over)