If you're a lower- to moderate-income taxpayer and contribute to a retirement plan, you can take advantage of a little-known credit called the saver's tax credit. Formerly called the retirement savings contributions credit, the credit encourages taxpayers to put money into retirement accounts, like a 401(k), by giving them a tax break on that money.
Unfortunately, not many Americans know about the saver's tax credit. In fact, a 2010 Harris survey reported that only 12 percent of qualified taxpayers were even aware of it.
The IRS calculates the saver's tax credit based on filing status (joint or single), adjusted gross income, and the amount contributed to retirement accounts. On the next few pages, we'll explain what the saver's tax credit might mean for you, and if you're eligible to file for it.