By Kathryn Kretschmer-Weyland
March 23, 2009

Many city employees are looking at an economic road that has grown ever rockier since last fall, knowing they may be filing a return for a tax year unlike anything they have seen before, as April 15 grows closer.

There may be a bright spot hidden among the 1040s that could reward city employees for having the perseverance to continue saving for their retirement even in tough times. That bright spot is the Saver’s Credit, a hidden gem in the Economic Growth and Tax Relief Reconciliation Act of 2001, made permanent and indexed for inflation by the Pension Protection Act of 2006. Qualified workers can receive up to a $1000 tax credit for retirement savings in 2008.

The Saver’s Credit is a tax credit on federal returns for saving for retirement through an IRA or an employer'sponsored defined contribution plan (like a city’s 457(b) plan). A “tax credit” allows you to reduce your tax liability dollar-for-dollar. A “deduction,” on the other hand, reduces the income subject to federal tax.

Eligibility depends on the participant’s filing status and modified adjusted gross income, but up to half of the first $2,000 of an annual contribution is eligible for the Saver’s Credit. In effect, the federal government gives qualified participants up to half of what they contribute each year, up to a maximum total credit of $1,000.

So as city employees are filing their taxes, it is important that they claim this credit if they qualify. And if they are looking for a reason to continue or start saving for retirement in 2009, the Saver’s Credit may be it. The credit covers a significant cross'section of wage earners – households with earnings as high as $55,000 can qualify for it.

Raising awareness among city workers about the credit will benefit them. In a time when many city workers may have to reduce household expenses, the credit can make city retirement plan participation more affordable. The mayors of America’s cities are in a unique position to help get the word out about this “buried treasure” in the tax forms. By sending an e-mail to all employees, running an article in the city newsletter, asking senior leaders to spread the word among their staffs, and putting an alert on the website, mayors can help city workers stay on a path toward long-term financial security.

The United States Conference of Mayors and their provider of the USCM Deferred Compensation Plan for more than 30 years, Nationwide Retirement Solutions (Nationwide®) can provide more information about how the Saver’s Credit and saving for retirement can benefit city workers. Public employees have a special status under the Internal Revenue Code and Nationwide® is uniquely suited to meet the needs of the public sector, serving nearly 8,000 government sector retirement plans with 1.58 million participants and over $39 billion in plan assets. For additional information about the USCM Deferred Compensation Program, contact Kathryn Kretschmer-Weyland with The U.S. Conference of Mayors at kweyland@usmayors.org or Louie Watson with Nationwide at WatsonL2@Nationwide.com.