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Updated: 10:46 a.m. Tuesday, Feb. 18, 2014 | Posted: 1:03 p.m. Monday, Jan. 31, 2011

The government will pay low-income tax filers to save for retirement with saver's credit

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So many people come up to me and say, "All that stuff you talk about saving is great…for people who make a lot of money. But what about the rest of us?"

Well, there's a federal program that's been around for years to encourage people to save for the future. Some 10 years ago, Congress passed what's called the Saver's Credit during the Bush administration with the goal of assisting savers who make a decent living but not a huge income.

Here's the deal: If you save $2,000 in a 401(k), IRA, 403(b) or 457 plan, the government will match your money as much as 50 percent, up to a maximum of $1,000. Save less than $2,000 and the government will give you a smaller percentage, either $400 or $200. See a chart that spells out how it works.

For illustrative purposes, let's assume you managed to save $2,000 last year. Here are the income caps for this little-known tax credit: 

  • If you are single (or married filing separate) and have an adjusted gross income (AGI) of $16,750 or less, you get the full 50% match from the government of $1,000. Earnings above $30,000 will make you ineligible for the credit.
  • If you're married and filing jointly, the maximum you can earn to get the $1,000 credit is $33,500 combined. Earnings above $60,000 will make you ineligible for the credit.
  • If you file as head of household, the maximum you can earn to get the $1,000 credit is $25,125. Earnings above $45,000 will make you ineligible for the credit.

This is a tax credit that you have to ask for when you're doing your taxes or having them done for you; you won't automatically get this benefit. (The applicable form is 8880.) The real shame is that nobody seems to be aware of this tax credit in the first place. In fact, The San Francisco Chronicle reports that of those who qualify, some 90% don't even know the program is out there. That's why I'm telling you. My goal is for you to save money. If there's an opportunity, I want you to take the dough.

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