Tax Credit for Retirement Plan Contributions

A new tax credit for contributions to Section 401(k) plans, Section 403(b) annuities and both traditional and Roth IRA's adds an extra incentive to save for retirement.  As discussed earlier, a dollar of credit saves a full dollar of tax.  To be eligible to claim the credit, you must be age 18 or over, not a full time student, and not claimed as a dependent on another's return.  The credit varies from 10 to 50 percent on contributions of up to $2,000.  Therefore, the maximum credit is $1,000 ($2,000 x 50%) per taxpayer.  Thus, you and your spouse together may be eligible for a credit of $2,000.  The credit is nonrefundable (see page 39 for the discussion on nonrefundable  credits).  The credit is in addition to any deduction taken for the contribution.  This is one of the few times so-called double dipping is available.  Only joint returns with AGI of $50,000 or less, head of household returns of $37,000 or less, and single returns of $25,000 or less are eligible for the credit.