2023 Saver’s Credit for 2024 Tax Filing
Updated: February 28, 2024
Retirement accounts contain money that you have set aside to use once you are retired and must be funded with cash, a check, or a direct transfer from your bank.. What makes these accounts different from other investments is that the federal government allows them to grow tax-free. However, you do not have easy access to the money when you are younger.
Like any savings plan, the earlier you start and the more you can add will leave you in a better position financially. In many cases you can make contributions automatically.
Most accounts have a Federal limit on how much you can deposit each year. Funds that are already in a retirement account and only being moved from one retirement account to another, such as investments rolled over from one Roth IRA account to another, funds converted from traditional IRAs to Roth IRAs, and funds rolled over from 401(k)s and other qualified retirement plans into IRAs, do not count toward this limit.
Like annuities, retirement accounts can be funded with pre- or after-tax dollars. However, unlike annuities, you can only add includible compensation, which means earned income, not passive income or other assets.
The Employee Retirement Income Security Act (ERISA) of 1974 sets the rules for retirement accounts that protects them, including from creditors, and allows you to receive tax benefits.
Includible compensation can include:
Includible compensation does not include:
Once funded, the account then earns tax-deferred gains. The sacrifice for this is that you can’t withdraw untaxed contributions before 59½ years old without penalty and the federal government sets yearly limits on how much can be added to each type of account. Your employer may set their own limits on how much you can contribute, either a dollar amount or percent of your salary.
Like annuities, most retirement accounts have a limit on how long you can defer withdrawals. The limit is:
The Roth IRA is an exception and has no minimum age requirements to start distributions.
When you begin to make withdrawals from these accounts, the money is taxed as regular income according to how it was funded.
There are many account choices, some of which depend on your employer or situation, but you can choose some based on your preference. No matter which ones you choose, service fees for setting up and maintaining a retirement account are quite expensive. The most expensive are employer sponsored accounts where both you and your employer have service fees, while Individual Retirement Accounts have only individual fees that are less expensive.
Retirement accounts through a bank offer FDIC insurance which insures your accounts in each bank up to $250,000.
Many retirement plans are sponsored by employers and allow you to contribute pre-tax or after-tax dollars. In some cases, the employer may match some or all of your contributions. Employers can receive up to $500 of tax credit per year if they create a 401(k) or SIMPLE IRA plan with automatic enrollment.
If your employer offers them, they are available to full-time and part-time employees who work either 1,000 hours per year or have worked three consecutive years with at least 500 hours. You can only make deposits with funds from your salary.
Depending on the type of account, there are three types of contributions.
Within the federal limit and any limit set by your employer, you can choose how much to deposit.
Some employers will match some or all of your contributions and get tax relief for them.
While you are entitled to all of your contribution if you leave your job, you will not be entitled to all of your employer’s contribution until you are fully vested.
If you change jobs you can either keep the account with your previous employer, move it, or cash it out. It can be difficult to choose among the options, but the decision is ultimately a financial one. You will be trying to balance the cost of services (fees) for moving the money with the possibility of making them up with a better return on your new account or investments.
Employer retirement accounts can be qualified or non-qualified depending on whether or not they follow ERISA rules.
If your adjusted gross income falls below a certain limit you may be eligible to take a non-refundable savers tax credit of up to $1,000 ($2,000 if married filing jointly) if you contributed to any type of employer-sponsored retirement plan.
Certificates of Deposit (CDs) are securities issued by commercial banks and pay a preset rate of interest over the term of the agreement. The Federal Deposit Insurance Corporation (FDIC) often acts as a guarantor of these securities. This oversight makes CDs relatively low-risk.
Money Market Funds invest in short-term (typically less than one year) securities commonly traded in the money market. While there may be some capital gains, most of the gains in value come from interest.
Mutual funds are a managed portfolio of investments with money from various investors that is pooled and invested in a variety of different financial securities including stocks and bonds.
Exchange-traded funds are a type of security similar to mutual funds. The investments usually involve a collection of securities such as stocks, but can also be invested in any number of industry sectors or use various strategies. Unlike mutual funds, exchange-traded funds are listed on exchanges and the shares trade throughout the day just like ordinary stock.
U.S. Treasury Bonds (T-bonds) provide you or your 401(k) with steady interest income, usually every 6 months. It is important to know that you must hold the bond through to maturity, usually 20-30 years, to earn a bond’s full yield.
Corporate Bonds provide recurring interest income, but unlike the U.S. Bonds there is risk involved that varies significantly by the issuer. Your 401(k) manager needs to conduct a thorough review of any corporate bond security before investing directly or through a mutual fund.
Annuities are becoming more common after the 2019 SECURE Act reduced liabilities for companies offering retirement plans.
401(k)s retirement plans are only available from your employer. If you work for a for-profit company, a 401(k) is the only retirement account of this type available. Some non-profit employers offer them, but it is less common.
Eligible employees can make tax-deferred contributions from their salary/wages on a post-tax (Roth) and/or pre-tax (traditional) basis. Employers may make matching or non-elective contributions to the plan and may also add a profit-sharing feature.
401(k)s from for-profit companies are more likely to be administered by mutual funds companies and to match some or all of your contributions.
Whether contributions are taken out before taxes (gross salary) or after taxes (take home salary) depends on which of the two types, traditional or Roth, you have. You may or may not have a choice of which one or a combination of the two.
Traditional 401(k)
Roth 401(k)
There is also a federal limit on total annual additions of employer contributions plus employee contributions (elective deferrals). It is the lesser of 100% of your includible compensation (earned income) for the year; or for 2023
The contributed funds are invested to increase the value of the 401(k). Your employer will usually present you with a few investment options for you to choose from.
If your employer’s plan allows it, you can borrow money from a 401(k) plan before retirement in an amount that is the smaller of 50% of your vested balance up to $50,000. If you have less than $10,000 invested, you can borrow up to your vested account balance.
403(b) plans can only be offered by the government or non-profit organizations, such as a public education institution, religious organization, or 501(c)(3) Tax-Exempt Organization.
A 403(b) works just like a 401(k) including traditional and Roth forms, a federal government limit for regular employee contributions in 2024 of $23,000, the ability to add $7,500 in catch-up contributions if you are 50 years old or older, and the ability to take loans if allowed by your employer.
There is a federal limit on total annual additions of employer contributions plus employee contributions (elective deferrals). It is the lesser of 100% of your includible compensation (earned income) for the year or for 2023:
If you have worked for your employer for at least 15 years, your employer is considered a “qualified organization” and your contributions have been less than $5,000 per year you are entitled to a Lifetime Catch-up that lets you contribute an additional $3,000 per year, up to a maximum of $15,000. How much additional you can contribute to the plan is the lesser of:
A thrift savings plan is similar to the 401(k) and 403(b), including traditional and Roth forms, but is only available to federal employees and members of the armed forces. It has the same limits.
A 457(b), also known as a deferred compensation plan, can only be offered by state and local governments and some non-profit organizations such as hospitals, charities, state colleges, and unions.
A 457(b) works similar to a 401(k) and 403(b) including:
Like a 403(b), a 457(b):
There are a number of differences from a 401(k) and 403(b).
You can have a 457(b) and a 403(b) (or rarely a 401k) at the same time and be able to contribute up to the limit for both.
A 457(f) plan is a supplement to a 457(b) plan.
457(b) and 457(f) plans usually work in combination with each other, but can be treated as separate entities.
A profit-sharing plan is a retirement plan created for you but funded solely by your company. Also known as a deferred profit-sharing plan, it allows you to receive a percentage of your company’s profits based on its earnings. Any size company can set one up.
A SIMPLE 401(k) is a savings plan available to businesses with fewer than 100 employees who earn more than $5,000 per year and do not offer another retirement plan. To allow for growth of a business, the employer can still offer the plan for two years after the company exceeds 100 employees, after which they need to switch to a standard 401(k) plan.
IRS rules prohibit your company from offering you other types of retirement plans if you are covered by a SIMPLE 401(k), but:
SIMPLE 401(k)s do not require non-discrimination rules, creation of vesting schedules, or tax reporting at the plan level; they are easier and less expensive to set up and manage than traditional plans.
To participate you must be at least 21 years old, must have been employed at least one year, and earned at least $5,000 in SIMPLE compensation from your employers in the past year.
Your contributions are tax-deductible and the 2024 limit for contributions is $16,000. If you are 50 years old or older you may contribute an additional catch-up amount of $3,500 per year.
Employers must contribute to the account; you are 100% vested in employer contributions from the beginning of the account and you will receive the full amount whenever you leave. There are two options for employer contributions.
Your employer has two choices for contributions to individual employees, either:
Unlike a SIMPLE IRA, loans can be taken from a SIMPLE 401(k)plan.
Withdrawals may be subject to a 10% penalty if you are less than 59-½ years old, unless you qualify for a hardship withdrawal. See: Exceptions to tax on early distributions – IRS website.
Unpaid loans are considered early withdrawals if not paid back on time.
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a savings plan available to small businesses with fewer than 100 employees who earn more than $5,000 per year and do not offer another retirement plan.
SIMPLE IRAs do not require non-discrimination rules, creation of vesting schedules, or tax reporting at the plan level; they are easier and less expensive to set up and manage than the previously described traditional plans.
Since businesses must match workers’ contributions to the plan, the SECURE Act gives them tax incentives to set it up. This tax credit is up to the 50% of necessary eligible start-up costs credit which is the greater of:
The plan allows pre-tax contributions by both employees and employers — employee contributions are voluntary. The amount of possible savings is less than other types of plans.
Your contributions are tax-deductible and the 2024 limit for contributions is $16,000. If you are 50 years old or older you may contribute an additional catch-up amount of $3,500 per year. You must fill out a SIMPLE IRA adoption agreement to open your account.
Employers must contribute to the account; you are 100% vested in employer contributions from the beginning of the account and you will receive the full amount whenever you leave.
Your employer has two choices for contributions to individual employees, either:
There are a variety of investment choices, including growth, growth and income, income, and specialized funds such as sector funds or target-date funds.
Unlike a 401(k), a SIMPLE IRA cannot be rolled over tax free into a traditional IRA without a two-year waiting period from the time you first joined a plan. SIMPLE IRA accounts can accept transfers from SEP IRAs, traditional IRAs, and employer-sponsored plans such as a 401(k).
Unlike a SIMPLE 401(k), you cannot take loans from the account or get a penalty-free hardship withdrawal, but like other accounts, if you withdraw money before 59½ years old you will pay a 10% early withdrawal penalty on the taxable portion of the money. This penalty is 25% if you withdraw funds within the first two years.
SIMPLE IRAs are subject to IRA-required minimum distribution rules.
A Simplified Employee Pension (SEP) plan or 408(k) plan gives employers or a self-employed person can establish the ability to contribute to traditional IRAs (SEP-IRAs) set up for employees.
An SEP plan has lower start-up and operating costs than conventional retirement plans, but is much different than a SIMPLE IRA. It is like a traditional IRA that your employer contributes to and is subject to the same rules and restrictions of a traditional IRA.
A Qualified Automatic Contribution Arrangement (QACA) can be part of most employer-sponsored retirement plans. It is a rule established under the Pension Protection Act of 2006 intended to increase employee participation in self-funded retirement plans by automatically enrolling them, unless they opt out. It is not subject to non-discrimination rules.
If you want to accept the plan your contributions start at 3% and gradually increase with each year you participate up to a maximum 10%. If you do not you must inform your employer of your preference.
Employer contributions must be either of:
There is a two year vesting period. There is a similar auto enrollment arrangement called an eligible automatic enrollment arrangement where you are 100% vested in employer contributions from the time the plan begins and you can withdraw funds within 30-90 days after your first automatic enrollment contribution was withheld from your wages.
Employees with low income find it difficult to save for retirement. The retirement savings contribution credit, or saver’s credit, offers eligible individuals with low-income and lower-middle-income a tax credit if they contributed to an employer-sponsored 401(k), 403(b), SIMPLE, SEP, thrift savings plans (TSP), or governmental 457 plans, an ABLE plan, or a traditional and/or Roth IRA.
You are eligible for this income tax credit in 2024 your the adjusted gross income (AGI) reported on your Form 1040 series return is $38,250 or less ($57,375 head of household or $76,500 if married filing jointly) and you are not less than 18 years old, a full-time student, or claimed as a dependent by another taxpayer.
If eligible, you can receive up to a $1,000 ($2,000 if married filing jointly) reduction in your income tax for the year, although your specific amount of the credit is based on your contributions to the retirement plans listed above, tax filing status, and AGI. The credit rate reduces from, 50% to 20% to 10% as your income increases.
2023 Saver’s Credit for 2024 Tax Filing
Credit Rate/Tax Reduction | Married Filing Jointly | Head of Household | All Other Filers* |
50% of your contribution | AGI up to $43,500 | AGI up to $32,625 | AGI up to $21,750 |
20% of your contribution | AGI $43,501- $47,500 | AGI $32,626 – $35,625 | AGI $21,751 – $23,750 |
10% of your contribution | AGI $47,501 – $73,000 | AGI $35,626 – $54,750 | AGI $23,751 – $36,500 |
0% of your contribution | AGI more than $73,000 | AGI more than $54,750 | AGI more than $36,500 |
*Single, married filing separately, or qualifying widow(er) |
2024 Saver’s Credit for 2025 Tax Filing
Credit Rate/Tax Reduction | Married Filing Jointly | Head of Household | All Other Filers* |
50% of your contribution | AGI up to $46,000 | AGI up to $34,505 | AGI up to $23,000 |
20% of your contribution | AGI $46,000 – $50,000 | AGI $4,500 – $37,500 | AGI $23,000 – $25,000 |
10% of your contribution | AGI $50,001 – $76,500 | AGI $37,501 – $57,375 | AGI $25,001 – $38,250 |
0% of your contribution | AGI more than $76,500 | AGI more than $57,375 | AGI more than $38,250 |
*Single, married filing separately, or qualifying widow(er) |
A solo 401(k) or individual plan is both an employer sponsored and individual retirement plan. It is available if you are self-employed and have no full-time employees, aside from your spouse. If your spouse works for your business, both of you may contribute to a solo 401(k) up to the individual limits described below. The drawback is that you will pay both individual and employer fees to open and maintain the account..
Solo 401(k)s come in two varieties, both of which will grow tax-free until you begin to withdraw the money.
When you are self-employed you are both employee and employer so you can contribute larger sums each year and have much more control over investments. 2024 annual contribution limits.
You must make any employee contributions by December 31st, but you have until the tax-filing deadline for the year, usually April 15th of the following year, to make your employer contribution.
Federal law prohibits you from withdrawing your solo 401(k) funds without penalty before 59½ years old, unless you use the money for a qualifying exception, such as a first-home purchase or large medical expenses. For a 10% early withdrawal penalty on the taxable portion of the money, you can withdraw Roth solo 401(k) contributions for other expenses at any time before then as long as you’ve had the account for at least five years.
If you have a second job where you are an employee and have access to a 401(k) through your employer, your contribution limits are a combination of your employer 401(k) and solo 401(k), not to each separately.
If your employer does not offer a retirement account or contribution matching or if they do and you would like to have another retirement account, you can open an individual retirement account (IRA). An IRA is a type of retirement account to which individuals can make contributions where the investments in the account grow tax-deferred. They are available at financial-services companies like large banks, brokerage companies, federally insured credit unions, and savings and loan associations. The institution will manage your account by investing the money according to your preferences.
Each spouse can have their own IRA under their name and tax identification number, but joint IRA accounts do exist.
You can also set up an IRA in your name for your non-working spouse called a Spousal IRA. It is a separate account that functions the same as yours and does not interfere with the ability to contribute to yours. The two accounts allow your family to double your annual savings. To qualify for a spousal IRA:
There are different types of IRAs, none of which have an age limit to contribute. The biggest differences between them are when you pay income taxes, whether or not there are modified adjusted gross income eligibility limits to contribute, and any age limits for required minimum distributions.
FEATURE | TRADITIONAL IRA | ROTH IRA | |
Income Limit to Contribute | None | Yes – $146,000/$230,000 | None |
Contributions Tax-deductible | Yes – if modified adjusted gross income less than $87,000 | No | No |
Distributions taxable | – Income – Yes – Additional 10% if done before age 59½ | – Income – No if done after having the IRA 5 years – 10% if done before age 59½ | Same as Roth IRA |
Required Minimum Distributions | Must begin at 73 years old – 72 if you turn 70½ in 2020 or 2022, 70½ if you turned that age before 2020 | No age limit | Must begin at 73 years old – 72 if you turn 70½ in 2020 or 2022, 70½ if you turned that age before 2020 |
Tax advantage | Defer taxes now if you are in a high tax bracket, but expect a lower one after retirement | Pay taxes now if you are in a low tax bracket, but expect a higher one after retirement | Tax deferred earning when you make too much to open a Roth IRA |
IRA funds can come from, regular contributions, spousal IRA contributions, transfers, rollover contributions, and conversions.
Each company will have their own rules, choices of investments, and service fees.
IRA contributions can be made all at once or over time.
Once opened, the funds in your IRA are invested to increase the value of the IRA. In general, IRAs invest in the same things as 401(k)s, 403(bs), and 457(b) plans, but offer a wider array of these investments.
The principal and earnings accumulate tax-free until they are withdrawn, when they may be taxed as income, depending on the IRA type, and according to your tax bracket at that time. You can choose your type of IRA based on when you can better afford income tax on your money, now or after your retirement.
You cannot take loans from an IRA account, although there are specific times outlined below you that can remove funds without penalty before you reach 59½ years old.must
There is no modified adjusted gross income limit to being able to contribute to a traditional IRA, although there are income limits for tax deductible contributions if you have a retirement account from your employer.
Like most other retirement accounts, traditional IRA contributions must be made from income earned in the same year as the contribution unless you are rolling over another type of retirement account.
Contributions are usually tax-deductible. If you are in a high tax bracket now, delaying income tax until retirement when your income may be lower makes financial sense. You can claim the tax deduction even if you do not itemize deductions on your tax return.
Whether you can make tax-deductible contributions to your traditional IRA depends on your marital and filing status, whether or not you and/or your spouse have another retirement account from your employer, and your modified adjusted gross income.
2024 Income Limits if You and/or Your Spouse Also Have a Retirement Account from Your Employer
MARITAL AND FILING STATUS | RETIREMENT ACCOUNT FROM EMPLOYER | MODIFIED ADJUSTED GROSS INCOME | TAX-DEDUCTIBLE |
Single, head of household or living apart from your spouse | Yes | Less than $77,000 | Entire contribution |
$77,000 to less than $87,000 | Phase-out range | ||
$87,000 or more | Not deductible | ||
Married filing jointly or qualifying surviving spouse | You, irrespective of your spouse having one | Less than $123,000 | Entire contribution |
$123,000 to less than $143,000 | Phase-out range | ||
More than $143,000 | Not deductible | ||
Either you or Spouse | Less than $10,000 | Part of contribution | |
$10,000 or more | Not deductible | ||
If you are over the tax-deductible income limit you can still contribute up to the federal limit but it can be difficult to keep track of which contributions are after-tax contributions. In addition, you will need to file an IRS Form 8606 for these contributions each year so you’re not taxed again when you take retirement distributions. It may be better to put that money into other investments, like a Roth or nondeductible IRA or use the money to contribute up to the limit for your employer sponsored account |
As with 401(k)s, you’ll pay taxes on the tax-deductible money once you withdraw it and an additional 10% penalty on the taxable portion of the withdrawal if this is before you are 59½ years old, with some exceptions. Although you’ll owe taxes on the distribution, there will be no penalty if you withdraw:
A Roth IRA is funded with after-tax dollars. You can contribute to a Roth even if you have a 401(k). Whether you can contribute directly to a Roth IRA depends on your marital status and modified adjusted gross income.
2024 Income Categories
Marital and Filing Status | Modified Adjusted Gross Income | Ability to Contribute |
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year | Less than $146,000 | Up to limit |
$146,000 to less than $161,000 | Phase-out range | |
More than $161,000 | Unable to | |
Married filing jointly or qualifying surviving spouse | Less than $218,000 | Up to limit |
$230,000 to less than $240,000 | Phase-out range | |
More than $240,000 | Unable to | |
Married filing separately and you lived with your spouse at any time during the year | Less than $10,000 | Up to limit |
More than $10,000 | Unable to |
You can invest in things other than the traditional ones if you choose a self-directed Roth IRA.
You can circumvent the income limits by starting with a traditional or nondeductible IRA that has no income limits and convert it to a Roth IRA following specific rules. This is referred to as a Backdoor Roth IRA.
Contributions are not tax deductible; you pay income taxes on your contributions.
Having already paid income tax has many advantages.
Unlike annuities and employer sponsored retirement plans, there is no limit on how long you can defer withdrawals.
You can arrange to have Roth IRA funds transferred to a living trust so you’re able to use them when you are alive and disperse them as you wish to your beneficiaries after your death.
Nondeductible IRAs allow you to grow your account without paying taxes until gains are withdrawn. They blend some features of traditional and Roth IRAs. In order to qualify to open a Non-Deductible IRA account with most financial institutions you must:
Major reasons to opt for a nondeductible IRA.
2024 contribution limits are the same as either the traditional IRA or Roth IRA, the lesser $7,000 ($8,000 if you are 50 years old or older).
Other features of a Non-Deductible IRA account.
Rollover IRAs are IRAs that receive funds from another retirement account, typically 401(k), 403(b), or 457 plans, before you can remove money without penalty at 59½ years old. Other qualified plans include:
You can opt for either a traditional or Roth IRA depending on the many factors outlined in those sections.
There are advantages of doing this, such as moving money from an employer sponsored to an individual retirement account to have more control over the investments, consolidating funds to achieve better investment options, or moving the money to a less restrictive IRA, whether it’s to have easier access to the money or not have income limits.
While most company retirement plans do not allow you to move money out of the plan while you are working there, some allow an in-service distribution that allows you to roll over some of your funds into a self-directed IRA account while you are still employed.
Most payments you receive from a retirement plan or IRA before this age can be “rolled over” by depositing the payment in another retirement plan or IRA within 60 days.
You can roll over all or part of any distribution except:
Tax implications of rollovers can be complicated and best discussed with your agent or plan administrator.
Like an annuity, you may use your retirement as an inheritance tool by naming primary (and possibly contingent) beneficiaries if you die before the end of the retirement account term or it is depleted. The process of naming a beneficiary that is not your spouse is complicated and should be handled by a financial advisor that understands the rules.
The primary beneficiary, usually your surviving spouse, will get the money if they claim it. If they have passed away or do not claim the funds, the money then goes to the contingent beneficiaries. Any other beneficiary is free to decline any or all of the account and defer to the next beneficiary. There are three types of beneficiaries:
The beneficiary who accepts the account cannot deposit additional funds and must decide how they’d like to receive their inherited funds. The options available to them are similar to those you had when the retirement account was yours. However, they will need to be aware of some minor differences and a few unique to inherited retirement accounts that will depend on the following factors.
Options available to beneficiaries of your retirement account
Your surviving spouse has three options when they inherit retirement accounts.
Since non-spousal beneficiaries of inherited IRAs and 401(k)s or other employer sponsored retirement accounts cannot add inherited account balances to their own, there are four options.
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