Plan Now to Get Full Benefit of Saver’s Credit

IR-2007-187, Nov. 9, 2007

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2007 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Formally known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

“We want low- and moderate-income workers to know about this valuable credit so they can effectively plan ahead and take full advantage of it,” said Richard J. Morgante, commissioner of the Wage and Investment Division of the IRS. “Now that a growing number of employers are automatically enrolling their employees in 401(k) plans, the saver’s credit offers many workers who save for retirement an added bonus.”

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2007 tax return. People have until April 15, 2008, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2007. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2008 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

*
Married couples filing jointly with incomes up to $52,000 in 2007 or $53,000 in 2008;

*
Heads of Household with incomes up to $39,000 in 2007 or $39,750 in 2008; and

*
Married individuals filing separately and singles with incomes up to $26,000 in 2007 or $26,500 in 2008.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned 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.

Read The Rest

---