Tax Time? 3 Potential Tax Breaks for Savers

What we’ll cover:

• If you’ve contributed to an IRA or HSA, you might be able to claim a deduction on your tax return
• Contributions to traditional IRAs are generally deductible
• Post-tax contributions to HSAs may also deductible

If you’ve been a good saver all year round, tax season could be a rewarding time. That’s because the federal government provides tax breaks, in the form of deductions and credits, for certain types of savings and retirement contributions. Consider it as another perk to saving for retirement.

As you (or your tax preparer) get ready to file your personal tax return, don’t forget to check whether you’re eligible to claim these three tax breaks.

IRA deduction

While contributions to a Roth IRA are not deductible, contributions to a traditional IRA might be. For 2022, the IRA contribution limit is $6,000 (or $7,000 for individuals who are 50 or older). For 2023, the contribution is $6,500 (or $7,500 for those 50 or older).

If you've maximized your IRA contribution, you can deduct the full amount on your personal tax return, as long as you (or your spouse) are not covered by a retirement plan at work.

However, if you or your spouse are covered by a plan at work, your deduction may be limited or you may not even qualify for one. The IRA deduction limimts are based on your filing status and modified adjusted gross income (often referred to as "modified AGI" or "MAGI").

For instance, a single filer with a modified AGI of $83,000 or more in 2023 would not be allowed to claim the deduciton at all.

For the most up-to-date eligibility rules and limitations for the IRA deduction, consult the IRS website.

HSA deduction

In general, if you contribute money directly to your Health Savings Account (HSA) – that is, not through an employer who contribute on your behalf or with pre-tax dollars – you may be able to deduct your contributions.

For the 2023 tax year, the maximum contribution to an HSA is $3,850 ($7,750 for an individual with family coverage). And for 2022, the maximum contribution is $3,650 ($7,300 for an individual with family coverage).

If you’re eligible for the HSA deduction and you’ve maximized your contribution, you could deduct up to the contribution limit on your tax return. What if you could only contribute $1,000? You would then only be able to claim a $1,000 deduction. You get the idea.

Keep in mind though that not everyone can open up an HSA. To qualify for an account, you have to meet four requirements according to the IRS:

• You have to be covered under a high-deductible health plan
• You can’t have any other health coverage except for those allowed by the IRS (see Other Health Coverage)
• You can’t be enrolled in Medicare
• You can’t be claimed as an dependent on another person’s tax return

Saver’s Credit

Remember playing the “which-of-these-does-not-belong” game when we were little kids?

The Saver’s Credit definitely falls into that category on this list of tax breaks because of its strict qualifying income limits. If you’re a single filer with an adjusted gross income (AGI) of more than $34,000 in 2022, you’re not eligible for the credit.

Even though you may not qualify for it, keep the Saver’s Credit in the back of your mind. It’s a tax nugget you could share with the young adults in your life who might not be raking in the Benjamins just yet.

Generally, to be eligible for the credit, you must meet the following criteria:

• You are age 18 or older
• You’re not a full-time student
• You contribute to an employer-sponsored retirement plan or IRA
• Your AGI does not exceed a certain amount
• You cannot be claimed as a dependent on someone else’s return

The credit rate is based on both your filing status and AGI. It can be anywhere between 10% to 50% of your retirement contribution. But the maximum contribution amount that may qualify for the credit is $2,000 (or $4,000 for joint filers). This means that the maximum value of the credit tops out at $1,000 ($2,000 for those who are married filing jointly).

Here are the rates and income limits for the Saver's Credit for the 2022 tax year: