The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

The following people qualify for the saver’s credit:

• Married couples filing jointly with incomes below $53,000 ($55,500 in 2009),
• Taxpayers filing as head of household, with income below $39,750 ($41,625 in 2009), and
• Single taxpayers (including married individuals who file separately) with incomes up to $26,500 in 2008 (or $27,750 in 2009)

While these income limits may seem low, if you are starting a new business, are unemployed or underemployed in any given tax year, this tax credit provides incentive to continue saving for your retirement by giving you some of your contributions back in the form of a credit.

The saver’s credit is a refundable tax credit which means it can increase your refund or reduce any tax you owe.  The maximum saver’s credit is $1,000 ($2,000 for married couples), but most people qualify for much less, depending on how much you save in your retirement account, your income, and other deductions and credits.

To claim the saver’s credit, file Form 8880 and attach it to your tax return (Form 1040).  This credit was made a permanent part of the tax code in 2006, and is adjusted annually to keep up with inflation.

For more information about the saver’s tax credit, please visit the IRS website at www.irs.gov.

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For IRAs, you have until the tax filing deadline (April 15) to do this, but for 401K, 403B and other employer sponsored retirement plans, you have to do this by the end of the calendar year.

The maximum amount you can contribute to 401K, 403B and 457 plans is $15,500 in 2008 (in 2009 you’ll get to contribute an extra $1,000 as the limit is increasing to $16,500).

You may be wondering if you should contribute more to your retirement plan given the stock market this year.  Actually, since stock and mutual fund prices are off by an average of 40% this year, you should be contributing to your retirement accounts.  Remember ‘buy low, sell high’?  Well now is a great time to buy low.

So not only can maxing out your retirement plan be a great tax planning strategy, for this year, it’s also a great investing strategy.

Related Posts:

• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement
• Standard Deduction and Personal Exemptions Increased For 2009
• December 31st Is The Last Day for Most Tax Planning Strategies