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Why Young Employees Should Consider 2023 Roth IRA Contribution and Perhaps Benefit from IRS’ Savers Tax Credit

FEDZONE Ed Zurndorfer
Young federal employees, especially those employees who entered federal service in 2023 after graduation from college, are encouraged to make their 2023 Roth IRA contribution and perhaps take advantage of the IRS’ Saver Tax Credit. The deadline for making IRA contributions for calendar year 2023 is April 15, 2024. This column discusses Roth IRA contributions including requirements for making Roth IRA contributions, the Roth IRA contribution limit for 2023, and who may qualify for the IRS’ Saver Tax Credit.Roth IRA contributions are nondeductible and in general nontaxable upon withdrawal. The accrued earnings in a Roth IRA will be nontaxable if the accrued earnings are withdrawn after the Roth IRA owner becomes age 59.5 and it has been at least five years since January 1 of the year the Roth IRA owner made his or her first Roth IRA contribution. The deadline for making a Roth IRA contribution for 2023 is April 15, 2024. If an individual is making his or her first Roth IRA contribution for 2023 and does so by April 15, 2024, then the five-year Roth IRA “ownership rule” requirement for tax-free withdrawals starts as of January 1, 2023.

The maximum Roth IRA contribution for 2023 is $6,500 per individual ($7,500 if the individual is over age 49 as of December 31, 2023). If an individual is married, then the individual’s spouse is also eligible to make his or her own Roth IRA contribution provided two requirements are met, as discussed below. There are no minimum or maximum age contribution rules. With a Roth IRA, if any individual has earned income can continue making Roth IRA contributions no matter what age the individual has reached.

There are no mandatory withdrawal rules for Roth IRAs. The required minimum distribution (RMD) rules of the traditional IRA do not apply to the Roth IRA. If an individual participates in an employer-sponsored retirement plan (such as federal employees who contribute to the Thrift Savings Plan), the retirement plan contribution limits are separate from the Roth IRA contribution limits. That means that federal employees can contribute both to the Roth TSP (subject to annual TSP contribution limits) and to a Roth IRA (subject to Roth IRA contribution limits) and adjusted gross income limits as discussed below.

To make a Roth IRA contribution, two tests must be met. They are: (1) The individual making the contribution must have “earned income” (salary or wages) during the year for which the Roth IRA is being made. For a married couple, at least one spouse must have earned income in order for both spouses to make contributions to their respective Roth IRAs; and (2) The individual’s modified adjusted gross income (MAGI) must not exceed the limit depending on the individua’s tax filing status. Note that for most federal employees MAGI is the same as adjusted gross income (AGI).

The following table summarizes the MAGI limits for individuals who want to make a Roth IRA contribution for 2023:

Table 1. Who Can Make a 2023 Roth IRA Contribution

Tax Filing Status

Can Contribute at the Maximum Limit if 2023 MAGI Is Not More Than... Can Contribute at a Reduced Limit if 2023 MAGI Is Between... Cannot Contribute if 2023 MAGI Is Above....
Single or Head of Household

Married Filing Joint

Married Filing Separate





$138,001 - $153,000


$218,001 - $228,000

$0 - $10,000





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Federal employees have until April 15,2024 to make their 2023 Roth IRA contributions. Since Roth IRA contributions are not reported on a federal income tax return (unlike traditional IRA contributions), those employees who have already filed their 2023 federal income tax returns can still make their 2023 Roth RIA contributions. Those employees who request a filing extension for their 2023 federal income tax return until October 15,2024 are still required to make their 2023 Roth IRA contribution no later than April 15, 2024. It is important for individuals who are making their 2023 Roth IRA contributions between now and April 15,2024 to tell their Roth IRA custodian that the contributions are for 2023 and not 2024.

One advantage of making 2023 Roth IRA contributions between now and April 15,2024 is that by now most employees know what their 2023 MAGI is. If they determine that their 2023 AGI is too large (as shown in Table 1) they should not make a Roth IRA contribution for 2023,

What happens if an individual has already filed his or her 2023 federal income tax return after making a2023 Roth IRA contribution and discovers that the contribution should not have been made because their 2023 MAGI was too large? In that case, the individual needs to contact their Roth IRA custodian before April 15,2024 and request a refund of their contribution and any accrued earnings. The refunded contributions will not be taxable because the contributions were made with after-taxed dollars. The accrued earnings will be taxable income for the year 2024, but not subject to a 10 percent early withdrawal penalty.

Finally, for those younger federal employees who contribute to a Roth IRA and /or a traditional IRA for 2023, there is a tax credit called the Saver Tax Credit that can be claimed on the employee’s 2023 federal income tax return if the employee qualifies. The maximum credit is $1,000 per person and is based on decreasing scale based on the employee’s AGI. The credit rate is from 10% to 50% based on AGI, as shown in Table 2 below:

Table 2. 2023 Saver Tax Credit


Current Rate


Married Filing Joint


Head of Household

Single, Married Filing Separate or Qualifying Widow
50% of eligible contributions AGI of no more than $43,500 AGI of no more than $32,625 AGI of no more than $21,750
20% of eligible contributions $43,501 -$47,500 $32,626 - $35,625 $21,751 - $23,750
10% of eligible contributions $47,501 - $73,000 $35,626 - $54,750 $23,751 - $36,500
0% of eligible contributions More than $73,000 More than $54,750 More than $36,500

The following example illustrates:

Julie, age 25, entered federal service in October 2023 after graduating from college. Her AGI for the year 2023 was $19,500 (she contributed $5,000 to the traditional TSP which reduced her taxable salary and total income by $5,000). Julie contributed $2,000 to a Roth IRA for the year 2023. Because Julie’s 2023 AGI is less than $21,750, Julie is entitled to a 50% of $2,000 or a $1,000 Saver Tax Credit for the year 2023. Julie decides to use the $1,000 tax credit to increase her 2023 Roth IRA contribution from $2,000 to $3,000.


Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Roth IRA Contributions - image: clipart man jumping off big coins

Tax Savers Credit - Roth IRA Contributions