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Saver's credit nets tax cash now for nest egg contributions

Gold nest egg with coinsIf you are putting money into a retirement savings plan at your office or into an IRA, then make sure you aren't missing out on the saver's credit.

This tax break, which offers a dollar-for-dollar reduction of your tax bill if you qualify, is today's Daily Tax Tip. The savings could be as much as $1,000 off your tax bill.

Contributions to certain workplace accounts -- 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) -- and both Roth and traditional IRAs count towards the credit.

But there are limits.

Eligibility computations: This tax break, formally known as the Retirement Savings Contributions Credit, is aimed at moderate- and lower-income taxpayers who are putting away some of their hard-earned dollars for their post-work years. It's phased out as a saver's income increases.

Once you get past the income restrictions, you also face a limit on how much of a credit you can get.

If you're a big saver for your golden years, your total contribution doesn't count. Instead only up to $2,000 in contributions count.

But wait, there's still more figuring to do. You credit's final amount is determined by a percentage that's based on your income.

These tables from the Internal Revenue Service break down the income limits and the percentage possibilities for 2013 and 2014.

Retirement Savers Credit tables 2013 and 2014

The bottom line is that for qualifying taxpayers, the maximum saver's credit is $1,000.

Added value of a credit: While the immediate tax payback for your retirement contributions might be disappointing, remember that it's a credit.

That means you get to subtract the credit amount directly from any tax you owe. And that means the retirement saver's credit could possibly zero out what you owe Uncle Sam.

Unfortunately, it's not a refundable credit. So if you get the $1,000 full saver's credit and owe $800, then you lose the other $200.

But remember, you've put money into a tax saving retirement vehicle for future use. That's a smart move that will pay off down the road.

The saver's credit is just icing.

And you still have time to boost your retirement savings and credit potential.

You have until April 15 to make a contribution to an IRA, Roth or traditional, for the 2013 tax that could bump up the amount of retirement savings credit you can claim.

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