taxes
Retirement saver's credit

If you contribute to a retirement account, either one you set up yourself or a company-sponsored plan, you may be able to claim a tax credit on your nest egg.

The retirement savings contributions credit, sometimes referred to as the saver's credit, first appeared on 2002 returns. It was created to encourage lower-income people to put away retirement money. Up to $1,000 in tax savings can be gained through the credit as long as a taxpayer doesn't exceed the income thresholds ($25,000 for single filers; $50,000 for married couples filing jointly).

The tax credit can be from 10 percent to 50 percent of retirement contributions, up to the credit limit.

The money can be placed in a:
Traditional IRA403(b) annuity
Roth IRAGovernmental 457 plan
401(k)SIMPLE IRA
Savings Incentive Match Plans for Employees (SIMPLE) 401(k)Salary reduction Simplified Employee Pension (SEP)

The exact percentage used to calculate the credit is phased in through the filing status income ranges so that basically, the lower a taxpayer's income, the bigger the credit. The precise credit amount also depends, of course, on just how much money a taxpayer saves toward retirement. The maximum amount of savings that can be used to figure the credit is $2,000 even though contribution levels to most retirement plans are well above that.

Other restrictions
In addition to the income and savings limits, there are a few other restrictions on who can claim the retirement savings credit. You cannot claim the credit if:
You are younger than age 18.
You are a full-time student.
You are claimed as an exemption on someone else's tax return.

The saver's credit also is nonrefundable. That means that while you can use it to cut your tax bill to zero, you can't take advantage of any excess credit to produce a refund.

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