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Tax Tip of the Week
For the week of
April 7, 2003

The "saver's credit": one more reason to save for retirement

Did you know you might be able to earn a tax credit as well as a tax deduction for contributing to your IRA or company retirement plan? In 2001, Congress authorized the "saver's credit" to encourage lower-income taxpayers to save more for retirement. If you qualify, a percentage of your contributions to an IRA or a qualifying plan will directly reduce the taxes you owe. Here's how it works.

To qualify, your adjusted gross income (AGI) must be less than $50,000 for joint filers. If you're single, the limit is $25,000, or $37,500 for a head of household. If you meet these income limits, your tax credit is a percentage of your retirement contributions. Only the first $2,000 of contributions per person qualifies for the credit. Also, you cannot claim the credit if you are under age 18, a full-time student, or a dependent of someone else.

The credit percentage varies between 10% and 50%, depending on your income level. For example, if you're single with AGI of $15,000 you would receive a credit of 50% of your contributions. If your AGI is at the upper limit of $25,000, your credit would be 10% of contributions. Remember, you also get a tax deduction for your contribution, reducing your tax bill further.

If you haven't been contributing to a retirement plan, this new tax credit adds yet another incentive to do so. You have until April 15, 2003, to make a 2002 IRA contribution that could reduce your 2002 taxes. For more information about the new saver's credit or about retirement accounts, contact our office.


Prior Tax TipsClick here to view previous tax tips.

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