Where Do you Go for Financial Advice?
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. In 2005, the most recent year for which complete 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. Saver's Credits claimed on these returns averaged $216 for joint filers, $149 for heads of household, and $140 for single filers. In November, Richard J. Morgante, Commissioner of the Wage and Investment Division of the IRS, said, "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. 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." From a plan sponsor standpoint, the application of the Saver's Credit has no administrative impact. Contributions eligible for the credit are included in regular discrimination tests, and even contributions made through an automatic enrollment program are eligible for the credit. For eligible participants, this is a tax credit, not a "mere" deduction. That means that it will reduce the federal income tax that participants pay on a dollar-for-dollar basis, though that is reduced by the amount of any taxable distribution received by the taxpayer during the testing period. A taxpayer's credit amount is based on his or her filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement programs. Form 8880 is used to claim the Saver's Credit, and its instructions have details on figuring the credit correctly. —Nevin E. Adams, JD