IRS Issues Guidance Re the Saver's Credit For Low Income Taxpayers
The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), enacted on June 7, 2001, made several changes to the Internal Revenue Code of 1986, as amended, that increase an individual's opportunities to save for retirement. The general provisions of EGTRRA relating to employee benefits and retirement plans are summarized in the Morgan Lewis White Paper "Overview of the Economic Growth and Tax Relief Reconciliation Act: Provisions Applicable to Retirement and Welfare Plans."
One change enacted by EGTRRA permits taxpayers whose adjusted gross income does not exceed $50,000 to take a nonrefundable income tax credit for employee contributions made to an employer sponsored retirement plan or an individual retirement account ("Saver's Credit"). The decision to take advantage of the Saver's Credit and the responsibility for correctly claiming and reporting the Saver's Credit rest with each individual taxpayer. It may, however, be advantageous for employers to provide employees with information regarding the Saver's Credit because such information may increase participation in employer-sponsored retirement plans and help eliminate discrimination problems. The IRS has issued Announcement 2001-106 Elective Deferrals and IRA Contributions (the "Announcement"), which this LawFlash briefly summarizes, to provide guidance with regard to the Saver's Credit.
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