Taxpayers Get Reminder from IRS on Retirement Savings Credit

December 10, 2007

The IRS is reminding low- and moderate-income workers that they may be eligible for the Saver’s Credit for their contributions to an IRA or defined contribution savings plan. The IRS included the advice in a news release issued in November.

The Saver’s Credit is a non-refundable tax credit that encourages low- to middle- income Americans to save money for retirement by providing tax credits up to $1,000 to qualifying individuals who make annual contributions toward a retirement plan.

The five-year-old credit helps offset part of the first $2,000 workers contribute to IRAs and to defined contribution plans and was made permanent by the Pension Protection Act of 2006 (PPA). Income limits are now adjusted annually to keep pace with inflation. With a growing number of private sector employers automatically enrolling employees in 401(k) plans, the Saver’s Credit can offer many more workers who save for retirement an added bonus.

In 2005, the most recent year for which figures are available, the IRS said saver’s credits totaling more than $900 million were claimed on nearly 5.3 million individual income tax returns. The average credit was $216 for joint filers, $149 for heads of household and $140 for single filers. Taxpayers have until April 15, 2008, to set up a new IRA or add to an existing IRA and receive credit for 2007.

You can read more about the IRS reminder on the IRS's website.