Among the many ways Congress encourages Americans to save for retirement is a special credit for workers in low-paying jobs. The "retirement savings credit" rebates up to 50% of the first $2,000 put in a 401(k) plan or an IRA. So, a $2,000 IRA contribution can cut your tax bill by $1,000.
There's a big catch, of course. The credit phases out quickly as income rises. On single returns, you get the 50% credit only if your AGI is less than $15,000. It drops to 20%, then 10% as income moves up to $25,000. For married couples, the thresholds double: The 50% credit is good until AGI passes $30,000, and it evaporates at $50,000.
But don't turn away if your income is too high to claim the credit yourself. You still may be able to cash in by helping your adult children who are starting out on their own.
The credit is not available to those who are under age 18, full-time students or dependents. But if you have a son or daughter you can no longer claim as a dependent, consider helping him or her with an IRA contribution to earn the instant tax break.
Or what a great bonus for the person who takes care of your kids! You could offer to match the $500 she puts in an IRA. The $1,000 contribution could earn your caregiver a big enough tax credit to fund her own contribution.
IRA contributions for 2003 can be made as late as April 15. The retirement credit goes on line 48 of Form 1040 or line 32 of the 1040A. You also need to attach a Form 8880.
GETTING STARTED
