Saving for Retirement

Whether you save on your own or through an employer, there are many ways for you to squirrel away money for your retirement. Uncle Sam wants individuals to save more toward retirement and is even willing to bribe people with tax breaks to do so.

It is important to note up front that the laws concerning retirement planning are some of the most complicated laws out there. Most formal retirement plans are under the jurisdiction of both the Internal Revenue Service and the Department of Labor. They, in turn, interpret and administer the multitude of laws concerning retirement plans found in the Internal Revenue Code and the Employment Retirement Income Security Act (ERISA).

Fortunately, most individuals do not have to wade through the intricacies of these laws. All most people really need to know is what their options are and which of them they can use to help save for retirement.

Financial Calculators What will it take to reach your savings goal? Use this Savings Goal Calculator to help you find out. Enter in your savings plan and view graphically your financial results. Click the report button to get more information about your plan, and what you can do to make sure that it is on track. Consistent investments over a number or years can be an effective strategy to accumulate wealth. Even small additions to your savings add up over time. Use this Savings Calculator to examine how to put this savings strategy to work for you!

Your good fortune is compounded by the fact that we let you know exactly what retirement plan options are out there and how you can take advantage of them. Most of the retirement plans you may encounter will be described under the following three general categories:

• Qualified Plans: Learn about the various employer-provided retirement arrangements that qualify for favorable tax treatment.
• Individual Retirement Arrangements: If you are not covered under an employer's retirement plan, or if you are covered but want to build an additional nest egg, find out how you can save on your own for retirement and get a tax break in the process.
• Nonqualified Plans: Although they generally don't involve tax breaks, discover how these types of plans are used by employers to defer compensation to executives and key employees.

Tax credit for retirement savings. To encourage low- and middle-income taxpayers to establish or maintain retirement savings accounts, Congress established a nonrefundable tax credit that may be available for you. As you go through the following materials, keep in mind that the "retirement savings contribution credit" is in addition to the other tax advantages of making contributions to an employer-sponsored retirement plan (e.g. 401(k), 403(b) annuity, SEP plan, SIMPLE plan, 457 government plan) or an individual retirement arrangement (e.g. traditional IRA, Roth IRA).

The amount of the credit is based on an applicable percentage (tied to your filing status and your adjusted gross income level), up to a maximum 50 percent, multiplied by your qualified retirement savings contributions (not to exceed $2,000). This means that the maximum tax credit that you can hope for is $1,000 (.50 x $2,000). To find out if you qualify for this very sweet deal, take a look at the following table in effect for 2013:

The credit is completely phased out when adjusted gross income exceeds the following amounts:

The income limitations used to determine the credit are annually indexed for inflation.

Planning Tools Depending on your annual income, you may be eligible for a tax credit when contributing to your retirement plan. Use this IRS Form 8880, Credit for Qualified Retirement Savings Contributions to help you figure and claim your credit. The credit phases out above a certain income level.