Publication Date

December 2007


[Excerpt] 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.


Suggested Citation
Purcell, P. (2007). The retirement savings tax credit: A fact sheet (RS21795). Washington, DC: Congressional Research Service.