With more workers finding themselves automatically enrolled in their employer’s 401(k) last year, this tax filing season brings an opportunity to combine that retirement savings with a tax cut.

As part of the Pension Protection Act of 2006, the government gave the go-ahead for employers to sign up workers for 401(k) savings plans unless the employee opted out. That has created a wave of new investors who previously had to initiate the plan themselves, but often failed to as part of human nature to procrastinate.

Most employees are sticking with the 401(k), employers are reporting. The Department of Labor estimates $134 billion of new savings for retirement will pile up during the next three decades.

For lower- and middle-class workers, the benefit also comes with a bonus in the form of the Retirement Savings Credit. For single tax filers earning adjusted gross incomes of less than $26,000 and married filers earning less than $52,000, a credit according to how much is saved for retirement is available. The credit is available for any contributions in 2007 to a 401(k), 403(b), IRA, 457, SEP or SIMPLE retirement plan in addition to a Thrift Savings Plan for government workers. IRA contributions for 2007 made through April 15 of this year are also eligible, so it’s not too late to get the credit.

Look for line 33 on the 1040A form and line 53 on the 1040. You’ll also have to attach Form 8880, which is the worksheet that determines how much you stashed away is eligible for a tax credit. The credit ranges from 50 percent of your retirement contributions to 10 percent.

BOOST RETIREMENT SAVINGS: The new year brings new limits to retirement savings. Workers can now put away up to $5,000 in their IRAs, up from $4,000 last year. For workers 50 and older, the $1,000 catch-up amount means those behind in their savings can stash up to $6,000 in 2008.

The IRS also now allows workers to roll over their former employer retirement plan directly to a Roth IRA if adjusted gross income is less than $100,000. Of course, tax will be due on the amount, but the 10 percent penalty for early withdrawal is avoided. Workers also get the benefit of that money growing tax free.

If you have a substantial amount in your old company plan, you may want to wait until 2010 when the IRS will let you split the taxes from converting over two years instead of having to pay it all if you convert now or in 2009. In addition, the $100,000 income limit disappears in 2010.

ARE YOU SAVING ENOUGH? The tax filing season is a great time to get a refresher on how well you are doing in your quest for retirement savings — or not. By adding up the retirement contributions you made in 2007 to your employer plan and IRA, you’ll get an eye-opening number on your total for the year and if you need to add more.

That number will either be a “Wow, I saved a lot’’ or “Darn, I’m not going to make it.’’ If the latter is your answer, you still have until April 15 to make an IRA contribution, which will also get you more of that Retirement Savings Credit if you’re eligible.

What should that number be? Financial advisors recommend anywhere between 10 percent and 15 percent of your gross income. To see how you are doing, use the savings calculator at www.dinkytown.com. Enter the amount desired at retirement, current savings, years to retirement, monthly savings and expected investment return to see what changes you need to make to reach your goal.



Dan Serra is a personal finance writer in Colorado Springs, Colo. Reach him at serrafinance@yahoo.com.