New For 2002: Tax Credits for Saving Money

For many years, Congress has recognized that the overall rate of savings in the USA is too low, especially among non-highly compensated individuals. 

To remedy this situation, 2001 tax legislation provides a non-refundable credit of up to $1,000 for contributions made by eligible taxpayers to a 401(k) plan, 403(b) annuity, section 457 plan, SIMPLE or SEP plan and ROTH or traditional IRA.

The credit is based on the individual’s gross income as indicated by the table.

The hope is that this credit will entice qualifying individuals to contribute to their retirement accounts, thus increasing the savings rate among non-highly compensated individuals and ultimately the overall USA savings rate.

To ensure maximum participation in an employer-sponsored qualified retirement plan, educate your team members about these new credits and the benefits of tax deferred savings. 

Additionally, highly compensated employees may be able to increase or maximize their elective deferral as a result of higher participation by non-highly compensated individuals.