Saver's Tax Helps Lower Income Employees Save for Retirement

Saving for retirement is a daunting task for anyone, but its particularly challenging for lower income employees. One provision of the Tax Code, however, can make it a little easier. Its called the "Savers Tax Credit." Originally added to the tax code in 2002 as a temporary provision, it became permanent in 2006. For 2011, the Savers Tax Credit is available to employees whose modified adjusted gross income is below $28,250 for Single tax filers, $56,500 for couples and $43,125 for Heads of Household. In 2012, the income limits will rise to $28,750 for singles, $57,700 for couples and $43,125 for Heads of Household.

If eligible, the Savers Tax Credit allows the first $2,000 an employee contributes to an IRA, 403b Plan, 401k Plan, or similar workplace retirement account, to count towards the savers tax credit. As a reminder, a tax credit is a dollar for dollar reduction of your tax bill. The credit can be used to increase your refund or reduce the tax you owe. The potential amount of the credit varies and is based on your income and filing status. Never the less, the credit itself can be as large as $1000 for employees (50% of the $2000 amount you contribute to employer'sRetirement Plan, or to an IRA). For eligibleemployees, the savers tax credits benefit is in addition to the tax deferral you receive from making a contribution toyouremployer'sRetirement Plan or IRA.

Unfortunately, awareness of the provision has remained low. Millions of lower income Americans dont know of this opportunity to help them save for retirement. In fact, a recent Transamerica Center for Retirement Studies online survey of 4,080 employees age 18 and older, found that only 21% of people earning less than $50,000 said they knew of the Savers Credit. Thats up from 12% in 2010. Hopefully, this article will reachthose employees who may be eligible.

Employees interested in obtaining the tax credit in 2011 must have made a contribution toemployer's retirement planby the end of the 2011 calendar year. However, you have until April 17, 2012 to make contributions to an IRA to get the credit for 2011.

For nearly all Americans, making contributions to employer retirement plans or IRAs is the key to a secure retirement. If youre eligible, dont overlook the opportunity provided by Savers Tax Credit to help you fund your retirement.

- 1/3/2012