When you don't have much money, it can be difficult to save for the future. Last month I highlighted San Francisco's Earned Asset Resource Network, a non-profit organization providing financial assistance and education to those who need it most.
Believe it or not, the U.S. government also has ways to encourage people to save. The Saver's Credit for Retirement Savings Contributions is one of those:
One way for low and moderate income Americans to save on taxes is by saving for retirement. If you make voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.
Formally known as the â€œRetirement Savings Contributions Credit,â€ the Saver's Credit applies to:
- Married individuals filing separately and single with incomes up to $26,500 for 2008
- Married couples, filing jointly, with incomes up to $53,000 for 2008
- Head of Household with incomes up to $39,750 for 2008
To be eligible for the credit you must be at least age 18, not be a full-time student, and cannot be claimed as a dependent on another person's return. You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The amount of the credit is determined by your filing status, your adjusted gross income, and your other retirement contributions.
This tax credit is applied on a sliding scale. I can't find the scale for 2008, but it's sure to be similar to last year's, which you can find on Form 8880 [46kb PDF]. Up to $2,000 of your retirement annual contributions can be used to determine the credit.
To learn more about this tax credit, read chapter five (“Retirement Savings Contributions Credit”) of IRS Publication 590, “Individual Retirement Arrangements”.