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The Retirement Savings Tax Credit: A Fact Sheet, December 20, 2007 1 (December 20, 2007)

handle is hein.tera/crstax0414 and id is 1 raw text is: Order Code RS21795 Updated December 20, 2007 ACRS Report for Congress The Retirement Savings Tax Credit: A Fact Sheet Patrick Purcell Specialist in Income Security Domestic Social Policy Division Summary The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) authorized a non-refundable tax credit of up to $1,000 for eligible individuals who contribute to an IRA or an employer-sponsored retirement plan. The credit was first available in 2002, and as enacted in 2001, it would have expired after the 2006 tax year. The Pension Protection Act of 2006 (P.L. 109-280) made the retirement savings tax credit permanent. Beginning in 2007, the eligible income brackets were indexed to inflation. The maximum credit is 50% of retirement contributions up to $2,000. The credit can reduce the amount of taxes owed, but the tax credit itself is non-refundable. The maximum credit is the lesser of $1,000 or the tax that the individual would have owed without the credit. Eligibility is based on the taxpayer's adjusted gross income. Taxpayers under age 18 or who are full-time students are not eligible for the credit. The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) authorized a tax credit to encourage low- and moderate-income families and individuals to save for retirement.' Eligible taxpayers who contribute to an individual retirement account (IRA) or to an employer-sponsored plan that is qualified under §401, §403 or §457 of the tax code can receive a non-refundable tax credit of up to $1,000. This credit is in addition to the tax deduction for contributing to a traditional IRA or to an employer- sponsored retirement plan. In determining the amount of the credit, neither the amount of any refundable tax credits for which the taxpayer is eligible nor the adoption credit are taken into consideration. The retirement savings credit was first available in 2002, and as enacted in 2001, it would have expired after the 2006 tax year. Section 812 of the Pension Protection Act of 2006 (PPA, P.L. 109-280) made the retirement savings tax credit permanent. Section 833 of the PPA provided that for years after 2006, the eligible income brackets will be indexed to inflation in increments of $500. 'The retirement savings tax credit is authorized in the Internal Revenue Code at 26 U.S.C., §25B. Congressional Research Service -f-! The Library of Congress Prepared for Members and Commitees of Congress

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