Tax-Time Tip: The Saver Credit
Did you know that you might be eligible to claim a tax credit for contributions you make to your retirement plan? If you're single and have a modified adjusted gross income of $25,000 a year or less, or if you're married and file jointly and earn a modified adjusted gross income of $50,000 a year or less, you may qualify for an annual tax credit - called the saver credit.
What is the saver credit?
It's a credit for qualified retirement savers to help offset their federal income taxes. The credit ranges from 10 percent to 50 percent of eligible contributions, and is available for tax years through 2006.
The credit is nonrefundable, which means that the amount claimed as a credit can never be more than the total tax owed for a particular year.
Who can take the credit?
If you voluntarily contribute to a 401(k), 403(b), SIMPLE, SAR-SEP, governmental 457 plan, or a Traditional or Roth IRA and your modified adjusted gross income (AGI) falls within the ranges detailed below, you may be able to use all or part of the credit. Voluntary after-tax contributions to qualified employer plans may also apply toward the credit.
HERE ARE TWO EXAMPLES:
- If you're single, had a modified adjusted gross income of $14,000 last year and contributed $500 to your retirement plan, you might qualify for a nonrefundable tax credit of $250.
- If you're married and file a joint tax return, had a modified adjusted gross income of $45,000 last year and you and your spouse each contributed $2,000 to your respective retirement plans, you might qualify for a credit of $400.
SEE THE TABLE BELOW TO DETERMINE IF YOU QUALIFY.
| Filing status | Modified AGI* | Tax credit (As a percentage of your contributions up to $2,000) |
|---|---|---|
| Married, filing jointly | $0 - $30,000 $30,001 - $32,500 $32,501 - $50,000 |
50% 20% 10% |
| Head of household | $0 - $22,500 $22,501 - $24,375 $24,376 - $37,500 |
50% 20% 10% |
| Single, married filing separately, qualifying widow(er) | $0 - $15,000 $15,001 - $16,250 $16,251 - $25,000 |
50% 20% 10% |
*Adjusted gross income is the income amount on which an individual's federal income tax is determined. AGI is calculated by subtracting certain deductions from a total of all taxable income.
You may not take this credit if you are a student, were born after January 1, 1986, or were claimed as a dependent on someone else's 2003 tax return.
Where can I learn more about the tax credit?
Your tax or financial adviser can explain how the new tax credit works and help you determine if you qualify. Visit the IRS website to find more information and a worksheet (Form 8880) to help you figure any credit you can take.
Investors should carefully consider the investment objectives, risks, charges and expenses of each fund. This and other important information is contained in the prospectus, which can be obtained from your financial adviser or downloaded. Please read the prospectus carefully before you invest or send money.
