How we earned $3108 from the IRS

Our 2006 tax return is the third return we have filed since Mr. Dimes and I got married in 2004. During these three years, we have been able to take a special tax credit, which was set to expire this year but has been made permanent by Congress. The credit is called the 8880, or the Saver's Credit. This credit is available to single, head of household, and married filing jointly filers who make below a certain income threshold and who contribute to qualified retirement plans (Traditional and Roth IRAs and 401k/403b plans). The credit allows each taxpayer to claim a nonrefundable credit of up to $1000 based on their retirement contributions and on their income level. The amount you can claim is either 50%, 20%, or 10% of the first $2000 you deposit into such plans. And as it is figured on a per taxpayer basis, the maximum credit for a couple filing jointly is $2000. That's better than the child credit! It's also the only credit you can qualify for after the end of the tax year, as you're able to contribute to IRAs until April 15th.
For 2004, we were able to take a $1000 credit (I was a full-time student in 2004, and full-time students, as well as people under age 18 are NOT eligible for this credit). In 2005, we were able to claim a credit of $1308. We were in the 50% range, but our tax liability for 2005 was only $1308, which limited the credit there. [As an aside, I suppose a couple earning under $30K would never actually be able to receive the $2000 maximum credit as their tax liability would be capped well below that, but I'm not motivated enough to run the numbers.] This year we made enough money that we were pushed forward into the 20% range, so our maximum tax credit was only $800. However, I'm not going to balk at $800 of my tax dollars returned to me.
For soldiers and sailors who have received nontaxable combat pay, there's an even better deal. The HEROES Act (Heroes Earned Retirement Opportunities Act) allows retroactive retirement contributions for soldiers and sailors with excluded combat pay. If you served in a combat zone and earned nontaxable combat pay in 2004 and 2005, you can make a retirement contribution for those tax years in the IRA of your choice, either a Traditional or a Roth. (My advice: Go for the Roth. The money wasn't ever taxed, and if you put it in a Roth, it won't ever be.) Once you have made the contribution, go back and amend your 2004 or 2005 return and capitalize on the Saver Credit, if you can.