When you are scrimping to get by paycheck to paycheck, saving for retirement is often left for another day.
But if your income is low enough, you may have found that day.
This year's tax return may give you a chance to invest virtually free money - as much as $1,000. It depends on whether you can make use of a little-known tax credit known as the "Saver's Credit."
Under the program concocted in 2002 as an incentive to persuade low- and moderate-income people to save for retirement, the federal government will refund up to half the money you put into an individual retirement account (IRA) or 401(k) retirement plan at work. You still have until April 17 to open an IRA with the government money.
But there are some catches: You have to pay enough taxes to get the credit because the government doesn't refund money that exceeds the total income taxes you've owed for the year. And to qualify for any money, your income has to be below $25,000 if you are single, or $50,000 if married.
At that level, you wouldn't qualify for the full $1,000. Instead, you'd get back 10 percent of your contribution, which would be $200 if you had put $2,000 into a 401(k) or an IRA. To qualify for the maximum refund of $1,000, you have to put at least $2,000 into a retirement account and have an income no higher than $15,000 if you are single or $30,000 if married. The percentages gradually decrease as your income rises above that threshold.
So if you fall within the income limits and can scrounge up anywhere from $1 to $4,000 for an IRA by April 17, you could get what essentially is a government match for part of your contribution.
You may already have money coming to you. During the year, if your income was within the limits and you put money into a 401(k), those contributions might qualify for the Saver's Credit. (For further information, see IRS Publication 590, Chapter 5, and Form 8880.)
About 57 million taxpayers have incomes low enough for the credit, but many don't qualify because they either haven't owed enough taxes or can't come up with the cash to save.
But some financial planners have been able to help people obtain IRA money through the Saver's Credit.
San Diego financial planner Glenda Moehlenpah advised a 27-year-old man with an income close to $27,000 to open an IRA so that he could reduce his income enough to fall just below the $25,000 mark. (Whenever you open a tax-deductible IRA, you reduce your income, and so you pay lower taxes.) But by opening the IRA and having an income below $25,000, the man accomplished two things: He lowered his state and federal taxes and he earned a $200 Saver's Credit.
The result, says Moehlenpah: The government, in essence, gave the man about $400 to fund his $1,110 IRA.
People who want to open an IRA can do it at a bank, brokerage or mutual fund company. Ask for a "no load" fund, which keeps your fees down.
Here are some diversified stock index funds identified by fund trackers Morningstar Inc. that accept investors with $500 or less: Scudder Equity 500 Index (800-621-1048), Columbia Large Cap Index (800-321-7854), or the Smith Barney S&P; 500 index (800-451-2010).
If you are about 25 years from retirement and have no other investments, or if you are nervous about losing money in the stock market, a "balanced fund" might be more appropriate. One to consider is the Buffalo Balanced fund (800-492-8332).
Messages for Gail MarksJarvis also can be left at 312-222-4264.