The credit was included in the final version of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The saver’s credit is a nonrefundable income tax credit for taxpayers with adjusted gross income that does not exceed $50,000, equal to a percentage of employee contributions made to an employer-sponsored retirement plan or IRA for taxable years beginning after December 31, 2001, and before January 1, 2007.
The IRS, in Announcement 2001-106, has provided information in question and answer format, including a sample notice that employers can give to employees explaining the credit.
The credit applies to voluntary contributions to the following plan types:
- a 401(k) plan
- a SIMPLE 401(k)
- a section 403(b) annuity
- a 457 plan
- a SIMPLE IRA plan
- a salary reduction SEP
- a traditional IRA
- a Roth IRA
The credit rate can be as low as 10% or as high as 50%, depending on the individual?s adjusted gross income. However, the maximum contribution that can be taken into account for the credit is $2,000 ? double that for those married, filing jointly.