Tax Tip of the Week
For the week of September 20, 2004

The government might pay you to save

Don’t automatically rule out making a contribution to your retirement savings just because your 2004 income is low. Under the right circumstances, you could finish up with $2,000 added to your retirement savings with an outlay of as little as $1,000. The government will contribute the extra $1,000 in reduced taxes just to encourage you to save.

The key is a tax credit known as the Saver’s Credit. It’s calculated as a percentage of your retirement contributions. As a credit, it directly reduces your taxes, dollar for dollar. To qualify, your adjusted gross income must be under $50,000 for joint filers. If you’re single or head of household, the limits are $25,000 and $37,500, respectively. You’re not eligible if you’re a student, under age 18, or claimed as a dependent.

The credit varies from 10% to 50% of your contribution, depending on income. Only the first $2,000 of your contribution qualifies for the credit. Contributions can be to an IRA or an employer retirement plan. Don’t forget that just by making a qualified contribution you’ll lower your taxable income and reduce your tax bill.

It’s not easy to find money for retirement when your income is low. But if you can find a way, this is a great opportunity to put something aside for your later years. Please contact our office to see how the numbers might work for you.

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