The "saver's credit": one more reason to save for retirement

Did you know you might be able to earn a tax credit as well as a tax deduction for contributing to your IRA or company retirement plan?  In 2001, Congress authorized the "saver's credit" to encourage lower-income taxpayers to save more for retirement.  If you qualify, a percentage of your contributions to an IRA or a qualifying plan will directly reduce the taxes you owe.  Here's how it works.

To qualify, your adjusted gross income (AGI) must be less than $50,000 for joint filers.  If you're single, the limit is $25,000, or $37,500 for a head of household.  If you meet these income limits, your tax credit is a percentage of your retirement contributions.  Only the first $2,000 of contributions per person qualifies for the credit.  Also, you cannot claim the credit if you are under age 18, a full-time student, or a dependent of someone else.

The credit percentage varies between 10% and 50%, depending on your income level.  For example, if you're single with AGI of $15,000 you would receive a credit of 50% of your contributions.  If your AGI is at the upper limit of $25,000, your credit would be 10% of contributions.  Remember, you also get a tax deduction for your contribution, reducing your tax bill further.

If you haven't been contributing to a retirement plan, this new tax credit adds yet another incentive to do so.  You have until April 15, 2003, to make a 2002 IRA contribution that could reduce your 2002 taxes.