Saver’s Credit Changes Under the Proposed EARN Act – Kiplinger’s Personal Finance

The Saver’s Credit helps lower- and middle-income Americans who contribute to a retirement plan by cutting up to $1,000 ($2,000 for married couples) off their tax bill when they file their annual tax return. It’s also a particularly good incentive to get young people started early on saving for their golden years.

But the Saver’s Credit as it exists today could be in for some significant changes – particularly with respect to how it’s paid. The EARN Act, which was recently introduced in the U.S. Senate, would basically convert the credit into a government matching program for retirement plan contributions. Other revisions would be made, too. If passed, the new rules would take effect in 2027.

While it’s too early to tell if the proposed changes will eventually be enacted into law, there is bipartisan support for major improvements to current retirement saving plans and incentives. So, depending on how the politics play out, there’s a decent chance that we’ll see improvements to the Saver’s Credit in one form or another in the near future – and they very well could be the modifications included in the EARN Act.

The Current Saver’s Credit

Currently, qualified taxpayers who contribute to a retirement plan (e.g., a 401(k), traditional IRA or Roth IRA) can claim the Saver’s Credit on their tax return. For 2022, single filers and married couples filing a separate return with adjusted gross income of $34,000 or less are eligible for the credit. Married people filing a joint tax return must have an AGI of $68,000 or less, while head-of-household filers must have an AGI of $51,000 or less to qualify. However, even if your income is below the applicable limit, you won’t qualify for the credit if you’re under 18 years of age, a full-time student, or can be claimed as a dependent on someone else’s tax return.

If you satisfy the eligibility requirements, the credit amount is either 10%, 20% or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts. The percentage used is based on your income and filing status. The credit is a “nonrefundable” credit, which means it can’t be larger than your overall tax liability before the credit is applied (so your credit could be reduced if your tax bill is low).

Contributions to an ABLE account also qualify for the Saver’s Credit if they’re from the designated beneficiary (although this rule is set to expire after 2026).

For more information on the current credit, see Saver’s Credit: A Retirement Tax Break for the Middle Class.

EARN Act Changes to the Saver’s Credit

The EARN Act would make a number of important revisions to the Saver’s Credit starting in 2027. First and foremost, it would change the …….


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