There is a tax credit known as Saver's Credit applicable for low and middle income families when they save for their retirement. The tax credit is non-refundable, which means that it is adjusted against the total amount of federal tax that you have to pay. You can get as much as $1000 as tax credit ($2000 for married filing jointly).
Eligibility Requirements For Saver's Credit
The first requirement is that your income should fall in the low-to-middle income category. The Adjusted Gross Income limit for 2009 is $55,500 if your filing status is married filing jointly, $41,625 if the filing status is head of household and $27,750 if you are single, married filing separately, or qualifying widow(er). If your AGI is above these limits, you are not eligible to claim the credit.
You should be 18 years of age
You should not be a full-time student
No one else (for example your parents) should claim an exemption for you in their tax returns.
If you take any distributions from your retirement account during the year in which the tax credit is claimed and also the two year period preceding the same, the amount of credit that can be claimed will be reduced by the distributed amount.
Retirement Contributions that are Eligible
Contributions to a Roth or Traditional IRA accounts
Contributions to a 401 k plan
Other salary reduction contributions like a SIMPLE IRA plan, a 403(b) annuity, a governmental 457 plan etc
Contributions to a section 501(c)(18) plan
Income Limits for 2009
| Credit Rate | Married filing jointly | Head of household | Other category of filers |
| 50% | Up to $33,000 | Up to $24,750 | Up to $16,500 |
| 20% | $33,001 – $36,000 | $24,751 – $27,000 | $16,501 – $18,000 |
| 10% | $36,001 – $55,500 | $27,001 – $41,625 | $18,001 – $27,750 |
| 0% | $55,501+ | $41,626+ | $27,751+ |
As the income goes up, the tax credit gets reduced. For example a married person filing jointly with an annual AGI of $32000 can claim $2000 if he has contributed $4000 or more to his retirement plan (50% of $4000). The same person can only claim $800 if his AGI is $34000 (20% of $4000).
As you can see, the Saver's Credit is a great incentive for low and middle income families to save for their retirement.
