 internal revenue service IRS tax news save for retirement now get a tax credit later savers credit higher limits can help low and moderate income workers save more in 2023 save for retirement now don't talk to me in that tone of voice IRS y'all save for retirement if I feel like it dang it I mean honestly like I think the government caused this whole problem with people not saving for retirement by trying to be all like manipulative and implementing sneaky policies to basically nudge people's behavior you know people don't like that crap man and people are like hey I see what you're doing over there IRS with this manipulative policy nudging stuff day government trying to tell me what to do tell me to save for retirement whatever I'll put my money in anti retirement stuff IRS how you like that I'm gonna I'm gonna take out loans that have like balloon payments that start right when I retire now I'm gonna I'm gonna spend my money on stuff to help me like juice up so I have like giant muscles that turn into like flab right at retirement age I mean honestly like I think the government would do better playing like reverse psychology or even better concentrate on making less regulations instead of manipulating people and tricking people nudging people appeal to their common rationality and humanity I mean I mean aren't those like the ideals like that the country was built on but whatever that's not gonna happen these days so make sure you have you gonna save for your retirement because if you do the iris might give you a cookie or at least allow you to keep more of your cookies but first a joke President Biden is at the wokes beckon call but he's not completely spineless I don't want any part of this project it's unconscionably fiendish if he were he'd be at the wokes beck or call I will not suffer your insubordination there has been a shocking decline in the quality and quantity of your total you know like the fact that the woke need to both beck and then call him means he's he's at least a step up from the Disney corporation but yeah that's not saying much and to be honest the fact that they need to both beck and call him it's probably just due to him missing the original beck so they have to then follow it up with a slightly louder call and I suspect they don't just yell at them the first time yeah out of fear of giving them a heart attack everyone I have a very dramatic announcement so anyone with a weak heart should leave now goodbye professor oh oh yes is the announcement so the beck is like a wake-up nudge so they can then tell him what to do with the call so the beckon calls like a like a one-two combo process you will fall into line now I are 2022-224 December 21st 2022 Washington the internal revenue service reminds low and moderate income workers that they can save for retirement now and possibly earn a special tax credit in 2022 and years ahead the retirement savings contribution credit also known as the savers credit helps offset part of the first $2,000 workers voluntarily contribute to individual retirement arrangements 401k plans and similar workplace retirement programs the credit also helps any eligible purple person with a disability who is the designated beneficiary of and achieving a better life experience otherwise known as able account contribute to that account for more information about able accounts see publication 907 there's a link to that here available on irs.gov the savers credit is available in addition to any other tax savings that apply still time to take action eligible workers still have time to make qualifying retirement contributions and get the savers credit on their 2022 tax return people have until April 18th 2023 the due date for filing their 2022 return to set up a new IRA or add money to an existing IRA for 2022 so both the Roth and traditional iris qualify so when we're thinking about contributing into these retirement plans remember that if you're putting money into a workplace type retirement plan then oftentimes it's going to be a cash-based system and you got to do that by the end of the year which obviously is quite near at this point in time and then you might be able to put money into an IRA if you still have the capacity to do so up until the point that that you file the return April 18th April 15th is what usually comes to mind 18th depending on the circumstances for a particular year could be a couple days distant from that so remember the basic idea of these retirement plans what's going on with these retirement plans well they're basically gonna be I would think of them kind of like an umbrella they're not new kind of things in terms of investment vehicles so if the government wasn't doing any incentives for us to save for retirement would we still save for retirement yeah we should but how would we do that we would be putting money into the same kind of stuffs we already put money into which would be usually kind of kind of stocks and bonds so we'd still hopefully be putting money away into you know investments that we can compile our money up for during our working years so that we have the money at the end now the rationale for kind of the nudging and the policies and all this kind of weird stuff with these retirement plans is that the idea that human beings are not good at short term decision-making we're better at long term I mean I'm sorry we're not good at long-term decision-making we're good at short term decision-making so instead of educating people on you know making arrangements for the long-term decisions the government tries to nudge people so they're gonna say hey I'm gonna try to take that long-term decision that people aren't good at and twist the policies around so that you're actually getting incentives in the short term to do the things that we think are good for you in the long-term so instead of again like appealing to you and rationally and saying hey I know this is a long-term decision but you need to think long-term in these areas they're gonna say no we're just gonna set up the system so that you actually get a benefit in the short term is kind of the idea so you're gonna get the the benefit when you put money into the retirement account for like a 401k plan or an IRA by lowering the amount of taxes you have at this point of time and then the government will tax you on it when you pull the money out at retirement time so that means that the short-term decision would be the rational short-term decision would be to put the money in to save the taxes at this point in time so then it gets a little bit tricky in terms of what kind of retirement accounts so when you put money into the retirement account it's just like an umbrella you've locked your money into some degree which you know normally wouldn't do because if there was an emergency you would want to take the money out which we saw during COVID when they had to do all these weird things to deal with the fact that people had money but it was locked in under a retirement account then they told people they couldn't work so they needed the money and then how can they let them get the money out without you know taxing them and whatnot now that they put it under the umbrella of the retirement so you kind of lock in your money away and saying I'm not gonna pull it out in exchange for you know a tax incentive is the general thought process so if you do that through a 401k plan and whatnot it's usually the most beneficial thing because you might have matching as well with that so you want to try to maximize the money that you can put in there because it is a significant benefit in terms of tax benefits to be taken so if you I'm not saying if it is the way it is so that's the way things are set up so you should you probably do what's best which be to take it not the stubborn and not take it even though it's kind of a manipulative kind of nudgey thing it seems like but you put money into the 401k plan and then and then you may still be able to put money into an IRA but it's kind of dependent on on whether you have the capacity and how much you have the capacity to put money into a 401k plan the thing that's nice about an IRA is that you have up until April 18th which means you can actually file your tax return or get it into the software and then have that last-minute tax planning of possibly putting money into an IRA at that time that means that you would like to have cash flow at the end of the year you'd like to maximize how much money you can put into a 401k plan if you can and then try to have some cash flow available in the event when you file your taxes so that if you have the capacity to put money into an IRA you can now again in practice of course what happens with these kind of retirement plans and 401k plans they often end up benefiting not the lower income workers but the but the people that are doing massive tax planning because now for them they're gonna they have the cash flow to maximize the retirement plan most most people don't have enough money to max out their 401k plan because they're they just don't have the money to do that so these these things that started out as being like a nudge to help moderate to low-income people possibly save for retirement when maybe they're not going to do that because they don't look at the long term because they don't have they can't at that point in time it might actually lend itself to benefiting higher-income individuals who actually have the money to do the tax planning with all these kind of complicated policies is what seems like happens to me but that's the general that's the general idea with it so you do want to try to from a tax planning standpoint max out the 401k plan and then see if you can have the cash flow available when you file your tax return to see if you can do any last minute putting money into an IRA if you have if you're self-employed and you have some some of the smaller kind of plans that are similar that allow you to put more money into an IRA such as a SEP type of plan or something like that then again you might have more time after the year has closed to figure out how much you can put in because there's limitations based on how much income you have and you would only know that if you actually file the tax return so that you could see how you can maximize it so you so you got a little bit more leeway there than usually if you're a W-2 employee where your income is somewhat static if you're salaried and therefore that I guess the government doesn't give you any time after after after the close of the year you got to put the money in during the year typically okay so on the other hand those participating in workplace retirement plans must take action by the end of 2022 for contributions to count for this year so this means elective deferrals contributions must be made by December 31st to a 401k plan 403 b plan which is usually the same or similar to a 401k plan but for public workers for employees in public schools and certain tax exempt organizations you got the governmental 457 plan for state or local government employees and then you got the thrift savings plan the TSP for federal employees contributions to certain other workplace retirement plans also qualify see the instructions on form 8880 for details there's a link to that here employees unable to set aside money this year may want to schedule their 2023 contributions soon so their employee error can begin withholding them in January so again the idea with putting money into a 401k plan if you are an employee is that if you can take the money out as you as you earn the money and it comes right out of your paycheck that's easier on you and again that is good self-planning to me which is different than something kind of being posed imposed on you say your employer forcing you to take the money out like type of thing right so it's a it's a good self-plan to say i'm going to take some money out every paycheck and put it into a retirement plan of some kind if you have access to the 401k plan that would typically be the way to go because you get the tax benefit of putting it into the 401k plan so oftentimes most normal people don't have the money to possibly max out the 401k plan they can't do it on one lump sum they what they want to do is what you want to do is budget and think about the maximum amount of money you can put into a 401k plan doing your best to maximize the amount that you can put in it without straining yourself to the point that you don't have enough money to get by as well as an emergency fund in the event of an emergency without dipping in hopefully to the to the 401k plan due to the fact that you'll be penalized and have to pay taxes on it if you pull it out early so who qualifies income limits based on a taxpayer's adjusted gross income and marital filing status apply for the savers credit there's a link to that here but due to inflation the limits will increase markedly in 2023 so as a result the savers credit can be claimed by married couples filing jointly with incomes up to $68,000 in 2022 or $73,000 in 2023 so heads of households with income of up to $51,000 in 2022, $54,750 in 2023 married individuals filing separately and singles with incomes up to $34,000 in 2022 $36,500 in 2023 like other tax credit the savers credit can increase the taxpayers refund or reduce the tax owed though the maximum savers credit is $1,000 I mean $2,000 for married couples the IRS cautions that it is often much less and due in part to the impact of other deductions and credits may in fact be zero for some taxpayers a taxpayers credit amount is based on their filing status adjusted gross income tax liability and amount contributed to qualifying retirement programs or able accounts form 8 8 8 0 there's a link to that here is used to claim the savers credit and its instructions have details on figuring the credit correctly in tax year 2020 the most recent year for which complete figures are available savers credits total more than $1.7 billion were claimed on about 9.4 million individual income tax returns so obviously when we apply these kind of things to the full country the the numbers get you know fairly large but you know 1.7 billion income in comparison to the to the national budget isn't a huge number but you know it's you gotta take it into relation what it is but it's a any case that's an average of about $186 per eligible return the savers credit supplements other tax benefits available to people who set money aside for retirement for for example most workers may deduct their contributions to a traditional IRA the Roth IRA contributions are not deductible qualifying withdrawals usually after retirement are tax-free so note just remember that if you're on the low income side of things you might be saying hey look I can put money into an IRA but why am I you know going crazy to try to put money into an IRA when I'm not paying much taxes right now anyways because I'm my income is below a certain threshold I'm at a pretty low tax bracket so it's not even a huge incentive to put the money in at this point it's a bigger incentive for people that are wealthy that are earning a lot of money at the current time frame because they're paying more on on the on the income at this point in time and the idea would be you know if you're if you're in your peak earning years then you put money in at this point because you'll be at a higher tax bracket with the with the tax system the way it is because we have a progressive tax system and then when you retire maybe you won't be living on as as much you know you'll you'll just be taking the money that you need to live on and you might not even take all of that from your retirement account so you might have a lower tax bracket at the point of retirement that considering or assuming the tax brackets will remain roughly the same through now till retirement but you might make assumptions you might say hey the government's clearly going bankrupt so they'll probably be taking like 90 percent of my money by time i retire so maybe you're thinking i'd rather pay the tax now in that case or you might be thinking i'm not in a high tax bracket right now i'm in a low tax bracket so what's the point of putting money under the umbrella of a normal IRA in that case you might want to put money into the Roth IRA which still gives you kind of a benefit so it's not the same kind of thing it doesn't have that same kind of economic nudging principle of trying to get your behavior to do something on the current time frame because you're still going to be paying the tax at this point but you get the benefit later because when you accumulate the money upwards in the investments and you pull it out then you're not subject to tax when you pull it out you also at retirement don't have the added burden of of the iris kind of forcing you to take the money out as you do with an IRA when you put stuff money into the IRA or a 401k plan it gets kind of tricky at retirement because then when you take the money out you've got these tax consequences that come along with it with which for normal workers that worked as a w2 employee their whole life and they've already they've always had withholdings taken out of the money and whatnot to all of a sudden have your money be pulled out and you've and you've got withholdings on it when you take the money out and then be forced to take the money out it's kind of it's kind of a it's throwing you into a more complex situation oftentimes at the point of time that you that you're retired you know so that's kind of some of the issues if you have it in the Roth then because you pay the taxes up front you don't have some of the same pressure to take it out and if you take the money out it's not taxable and it would you would like to ideally have some money in a Roth and some money in a traditional IRA so that when you're living off the money in your retirement accounts if you're live if you're pulling a hundred thousand out you would like it not all to be taxable it would be nice if you could pull a hundred thousand out and live on it at that time or whatever would you need to live on at that time there's going to be inflation so it's going to be higher than now i'm just picking a number it would be nice if you could take 50 000 out that was non-taxable from like a Roth or just savings or what not or earnings that you're living on and then the other the other half out of like an ira so you would only be taxed on the 50 000 which means you'd have a lesser tax bracket lesser burden as opposed to be taxing at 100 000 which would be a higher tax bracket you know and a higher burden given the progressive tax system in any case some restrictions apply other special rules that apply to the savers credit include eligible taxpayers must be at least 18 years of age anyone claimed as a dependent on someone else's return cannot take the credit a student cannot take the credit a person enrolled in a full time student during any part of five calendar months during the year is considered a student any distributions from a retirement plan or able account reduce the contribution amount used to figure the credit for 2022 this rule applies to distributions received after 2019 and before the due date including exceptions of the 2022 return form 880 and its instructions have details on making this computation to learn more about other ways to get ready for tax season ahead visit irs.gov forward slash get ready that's where you that's where you order a lot of alcohol to get ready isn't that that's how you get ready for taxies no any case but any case there's links to all this stuff here and there'll be a link to this in the description