What is the Saver's Credit?

Yet Another Reason to Invest in an IRA
You may be eligible to grab a credit on your 2004 tax return simply for saving your money.

If you qualify for the Saver's Credit, you can get a credit for up to half of what you contribute to your IRA or other eligible retirement plan.

A quick reminder: a tax "credit" means you reduce your tax liability dollar for dollar, versus a "deduction," which reduces your income subject to tax.

Up to $2,000 of your annual contribution is eligible for the Saver's Credit. How much of the Saver's Credit you are eligible for (and whether you get any of it) depends on your filing status and adjusted gross income (AGI). For this purpose AGI includes excluded foreign income.

Those eligible for a credit of 50 percent of their contributions are joint filers with up to $30,000 AGI, head of household filers with up to $22,500 AGI, and other filers with no more than $15,000 AGI.

On the other end of the spectrum are those who may not qualify for the credit. You are not eligible for the Saver's Credit if you file a joint return and have an AGI of more than $50,000. The same goes for those heads of households whose AGI is more than $37,500, and other filers whose AGI is more than $25,000. For more AGI details, refer to Saver's Credit Eligibility at a Glance.

The Saver's Credit creates yet another reason to invest in an IRA.

If you haven't started an IRA yet (and millions of people haven't) or made a contribution to your already established IRA or retirement plan this year, don't fret - there's still time. You have until April 15, 2005, to contribute to a retirement plan for the 2004 tax year. For more information, read about your IRA options.

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