Survey Data Reveal Stunning Lack of Awareness of Retirement "Saver's Credit"

Business Wire, March 19, 2007

Many Qualifiers May Be Missing Out On Important Tax Credit

LOS ANGELES -- According to recent survey data, very few American adults are aware of an existing tax credit designed to help low- to middle-income Americans build their retirement nest eggs. The survey, commissioned by the Transamerica Center for Retirement Studies ("The Center"), found that only 9 percent of American adults who fall within the credit's income eligibility requirements are familiar with it. With regard to the adults overall in the American public, only 16 percent are familiar with it.

The survey results could raise concerns that many Americans who are already saving for retirement through a company-sponsored retirement plan such as a 401(k), or through an individual retirement account, may miss out on taking the Saver's Credit simply because they don't know about it. Particularly vulnerable are the 29 percent of survey respondents who meet the credit's income limits and have either filed, or plan to file, their taxes using the Form 1040EZ. The Form 1040EZ does not provide for claiming the credit, which can only be claimed using the Form 1040, Form 1040A or Form 1040NR (along with the accompanying Form 8880).

"While many qualifiers may be missing out on a significant tax credit, there are also many non-savers who might start saving for retirement with the help of an incentive like this. Unfortunately, they don't know about it," says Catherine Collinson, retirement and market trends expert for The Center.

Adding to the confusion, the credit is most commonly known as the "Saver's Credit," but the IRS refers to it as the "Retirement Savings Contributions Credit" and the "Credit for Qualified Retirement Savings Contributions" in its forms and publications.

Who is eligible for the Saver's Credit?

For singles, anyone earning $25,000 or less is eligible. For the head of a household, the income limit is $37,500. For those who are married and file a joint return, the income limit is $50,000. Additionally, the taxpayer must be 18 years or older by the end of the tax year and cannot be a full-time student or be claimed as a dependent on another person's tax return.

Depending on filing status and income level, taxpayers may qualify for a credit of up to $1,000 annually (up to $2,000 if filing jointly) when making eligible contributions to a qualified retirement plan, such as a 401(k), 403(b) or 457 plan, or a traditional individual retirement account (IRA). After tax year 2006, the adjusted gross income limits are scheduled to increase annually in $500 increments to allow for inflation.

Important note: the Saver's Credit is nonrefundable and may only be applied towards the federal income taxes owed in a given year. If an individual or household has no tax liability, then the Saver's Credit would not be treated by the IRS as a refund.

How does it work?

"The Saver's Credit can be viewed as the government's matching contribution to help eligible individuals and households save for retirement," says Collinson.

In general, for every dollar contributed to a qualified retirement plan or traditional IRA, up to the lesser of the limits permitted by the plan or the Internal Revenue Code, taxpayers can defer their contribution amount from their current overall taxable income to lower their federal income taxes. At the end of the year, when they prepare their federal tax returns, they may claim the Saver's Credit by subtracting the applicable tax credit from the federal income taxes owed. A taxpayer may be eligible for one of the following Saver's Credit rates: 50 percent, 20 percent or 10 percent.

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How Can I Claim the Saver's Credit?

If you have contributed to a company-sponsored retirement plan, such as a 401(k) plan, or traditional IRA in the past year, check to see if you meet the Adjusted Gross Income requirements and:

* If you are using a professional tax preparer, be sure to ask about the Saver's Credit; or,

* If you are using tax preparation software to prepare your tax return, use Form 1040A, Form 1040 or Form 1040NR to prepare the tax return as the credit is not available with Form 1040EZ. If your software has an interview process, be sure to answer questions about the Saver's Credit, Retirement Savings Contributions Credit, and/or Credit for Qualified Retirement Savings Contributions; or,

* If you are preparing your tax returns manually, complete the Form 8880 to determine the exact credit rate and amount. Be sure to enter the retirement saving amount on Form 8880, Credit for Qualified Retirement Savings Contributions. Complete the form to determine the exact credit rate and amount. Then transfer the amount to the designated line on Form 1040A, Form 1040 or 1040NR.

For more information, see IRS publication 590, check the IRS Web site at www.irs.gov or ask your tax professional.

Transamerica Retirement Services and its representatives cannot give ERISA, tax or legal advice. This press release is provided for informational purposes only based on our understanding of material provided and should not be construed as ERISA, tax or legal advice. Although care has been taken in preparing this press release and presenting it accurately, Transamerica Retirement Services disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.