Retirement Saver’s Tax Credit

Everyone who participates in the State of Maine’s Deferred Compensation Plan enjoys the advantages of tax-deferred savings. But did you know that you may also qualify for an additional tax break through a retirement saver’s tax credit? It’s important to know about this feature and, if you qualify for the credit, how you can use it to save on taxes.

Who is eligible for a retirement saver’s tax credit?

The retirement saver’s tax credit allows you to claim a credit on your income taxes for part of your contribution to the Deferred Compensation Plan if you are:

Age 18 or older for that year,
Not a full-time student during any part of 5 calendar months for the year you are making contributions, and
Not claimed as a dependent on someone else’s income tax return.

In addition, your adjusted gross income (AGI) for 2006 (as calculated on your tax return) must not exceed:

$50,000 if you are married filing a joint return,
$37,500 if you file as head of household with a qualifying person, or
$25,000 if you are married filing separately or are single.

For more information on who is eligible for the retirement saver’s tax credit, please contact the IRS at 1-800-829-1040 or visit the IRS website at www.IRS.gov.

How does the credit work?

If you qualify, you are permitted to take a tax credit equal to 10%, 20% or 50% of the first $2,000 you contributed during the year to retirement plans such as the Deferred Compensation Plan. The following chart shows what percentage you are eligible to claim as a tax credit. You need to multiply that percentage by the amount of your contributions (up to the $2,000 maximum). Contributions and distributions to other retirement plans can impact on the contribution amount eligible for the tax credit. Simply locate the column with your tax filing status and your AGI in the table:

2006 Tax Year

AGI Married Filing Jointly	AGI Head of Household	AGI Married Filing Separately or Single	Saver’s Credit (% of first $2,000 contributed)
$0 - $30,000	$0 - $22,500	$0 - $15,000	50%
$30,001 - $32,500	$22,501 - $24,375	$15,001 - $16,250	20%
$32,501 - $50,000	$24,376 - $37,500	$16,251 - $25,000	10%
Over $50,000	Over $37,500	Over $25,000	0%

For example, if you contribute $1,000 to the Deferred Compensation Plan for the year and your saver’s tax credit percentage is 20%, your tax credit is $200 ($1,000 x 20%). The tax break you receive is a “credit” instead of a “deduction”, which is a better deal in many cases. What’s the difference between the two? A tax deduction reduces your taxable income and this will reduce the amount of taxes you pay by a percentage net basis. A tax credit is a dollar-for-dollar reduction in the amount of tax you actually pay. For example, if you owe $600 and you are eligible for a $200 credit, the check you have to write to the IRS is reduced to $400.

When looking at the income ranges in the above table, keep in mind that participating in the Deferred Compensation Plan helps you lower your AGI and your taxable income. This is because your AGI is reduced by the amount of your plan contributions. If your income is close to the top of a range, increasing your plan contributions could put you in a range where you boost your tax credit. For example, Sue is a married employee filing jointly, who reports an AGI of $30,500 on her tax return and contributes $1,000 to the Deferred Compensation Plan. That makes her eligible for a 20% or $200 (20% of $1,000) tax credit. If Sue contributes $500 more to the Plan, she lowers her AGI to $30,000, which means she can take the maximum credit of 50%. The additional $500, combined with her initial $1,000 contribution, provides a $750 (50% of $1,500) tax credit for the year. As a result, Sue’s tax credit has increased by $550 ($750 less $200). Not only did it not cost Sue anything to make those additional $500 worth of contributions, she also ended up with an extra $50 in her own pocket from the tax credit ($550 additional credit less the additional $500 Sue contributed).

One other point to note: The saver’s tax credit is nonrefundable under IRS guidelines. That means you can use it to reduce your tax bill to zero, but any excess credit amount is not paid to you as a refund. In other words, if you owe no taxes, the credit is of no use to you. For example, John is single, has an AGI of $15,000 for 2006 and contributed $2,000 to the Deferred Compensation Plan. As a result, he is eligible to receive a $1,000 tax credit (50% of $2,000). Assuming he claims one exemption and takes the IRS standard deduction for the year, he would owe $653 according to the tax tables. So, he could apply the $1,000 tax credit to reduce the taxes he owes to zero, but he can’t take the additional amount ($347) as a refund.

What do I need to do to claim the credit?

The retirement saver’s tax credit is a way to reward people who are saving for retirement. You can take the credit when you complete either the IRS 1040 or 1040A tax return. You will also need to attach IRS Form 8880 to your return. You can view these forms and more details online by visiting the IRS website at www.irs.gov. Everyone’s tax situation is different, so we recommend you consult with your accountant or a tax professional regarding the retirement saver’s tax credit.

What are the 2007 limits?

In the above example, Sue was able to maximize her credit by contributing enough money to lower her AGI for that tax year. Knowing what the 2007 income requirements are for the retirement saver’s tax credit can help you to maximize your tax savings through the plan. For 2007 the limits have changed, because they are adjusted annually for inflation.

2007 Tax Year

AGI Married Filing Jointly	AGI Head of Household	AGI Married Filing Separately or Single	Saver’s Credit (% of first $2,000 contributed)
$0 - $31,000	$0 - $23,250	$0 - $15,500	50%
$31,001 - $34,000	$23,251 - $25,500	$15,501 - $17,000	20%
$34,001 - $52,000	$25,501 - $39,000	$17,001 - $26,000	10%
Over $52,000	Over $39,500	Over $26,000	0%

Keep in mind that your AGI is affected by several factors in addition to your salary, such as pre-tax deductions, interest income and other items.

For more information on your AGI you can refer to your most recent tax return, contact the IRS at 1-800-829-1040, or visit the IRS website at www.IRS.gov.

The retirement saver’s tax credit is just one of the many benefits you enjoy while participating in the State of Maine’s Deferred Compensation Plan. If you are not participating today but would like to enroll, you can contact one of the financial services organizations listed at the end of this newsletter and ask them to send you enrollment materials. It’s never too late to start saving for retirement, and you can enjoy important tax advantages in the meantime.

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Investment Fund Details

IMPORTANT NOTE: The information presented here is not intended as investment advice. Its purpose is to help you understand the investment options available through the State of Maine Deferred Compensation Plan. Your financial strategy and investment choices are entirely your own and should reflect your personal needs and circumstances. State of Maine personnel, by federal law, cannot provide investment advice. For more information, you may want to consult with a professional financial advisor. The investment information shown is current as of December 31, 2006. For more up-to-date investment results, please contact your financial services organization. In addition, many of the investment funds available through the Plan can be tracked in your local newspaper or online at various financial websites. Going forward as we improve our http://www.maine.gov/msenc/defcomp/index.htm website we hope to improve on the timing of our newsletters.

Results are historical and not intended to portray future performance. Current performance may be less than figures shown. Investment benchmarks (shown in italic) may differ from the benchmarks provided in the funds’ prospectuses.

Please note for charts below and to the right, Fixed Accounts (noted with an “*” in the “Rates of Return” column) provide a specified rate of return. For current rates, along with an explanation of how they are determined, contact your financial services organization.

THE HARTFORD
		Return on Investments (net of expenses)				Operating Expenses
Rates of Return as of December 31, 2006						Operating Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	Annualized		Management Fees	Other Expenses	Total Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	3 Years	5 Years	Management Fees	Other Expenses	Total Expenses
Low	Hartford Life Fixed Account	Current Interest Rate for 4Q is 4.0%*				—	—	—
	Hartford Total Return Bond HLS	1.65%	4.33%	3.49%	5.45%	0.50%	0.45%	0.95%
	Lehman Aggregate Index	1.24	4.33	3.70	5.06
	SSgA Interm Bond Index	0.95	3.72	2.48	4.12	0.40	0.00	0.40
	Lehman Interm Gov/Credit Index	1.03	4.07	2.89	4.52
Medium	Oakmark Equity Income I**	4.34	10.15	9.26	9.22	0.89	0.60	1.49
	Janus Balanced	4.14	9.90	8.35	5.96	0.79	0.60	1.39
	60%/40% S&P 500/ LB Agg	4.49	11.11	7.77	5.99
	Hartford Dividend & Growth HLS	7.90	19.64	12.09	8.64	0.67	0.60	1.27
	Russell 1000 Value Index	8.00	22.25	15.09	10.86
High	SSgA S&P 500 Index	6.60	15.42	10.08	5.85	0.35	0.00	0.35
	Hartford Capital Appreciation HLS	8.87	15.92	16.46	12.28	0.70	0.60	1.30
	Neuberger Berman Socially Responsive Tr**	7.04	13.53	10.96	9.10	1.17	0.60	1.77
	S&P 500 Index	6.70	15.79	10.44	6.19
	SSgA US Total Market Index	7.09	15.23	11.27	7.24	0.40	0.00	0.40
	Wilshire 5000 Index	7.32	15.88	11.54	7.65
	Hartford Global Technology	6.24	9.69	6.88	3.65	1.05	0.60	1.65
	S&P Technology Index	6.12	8.42	3.94	0.68
	American Fds Growth Fund of America	6.21	9.96	11.35	7.04	0.94	0.60	1.54
	Russell 1000 Growth Index	5.93	9.07	6.87	2.69
	Lord Abbett Mid Cap Value	8.74	11.52	13.87	10.43	1.18	0.60	1.78
	Russell Mid Cap Value Index	8.50	20.22	18.77	15.88
	SSgA S&P Mid Cap Index	6.88	9.89	13.14	10.75	0.40	0.00	0.40
	S&P 400 Index	6.99	10.32	13.09	10.89
	Hartford Mid Cap HLS	8.01	11.07	14.28	11.73	0.70	0.60	1.30
	Russell Mid Cap Growth Index	6.95	10.66	12.73	8.22
	Franklin Small-Mid Cap Growth	6.06	6.88	9.68	4.80	0.96	0.60	1.56
	Russell 2500 Growth Index	8.24	12.26	11.64	7.62
	SSgA Russell 2000 Index	8.85	17.73	13.41	11.01	0.40	0.00	0.40
	Russell 2000 Index	8.90	18.37	13.56	11.39
	MFS Int’l New Discovery A**	13.30	26.09	23.01	20.49	1.61	0.60	2.21
	SSgA EAFE Index	10.17	25.78	19.33	N/A	0.50	0.00	0.50
	MSCI-EAFE Index	10.40	26.86	20.41	15.43
	Franklin Mutual Discovery A	8.69	22.28	18.34	14.24	1.39	0.60	1.99
	MSCI-World Index	8.47	20.65	15.23	10.49

**New fund as of 5/16/06.

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ING FINANCIAL ADVISERS, LLC
		Return on Investments (net of expenses)				Operating Expenses
Rates of Return as of December 31, 2006						Operating Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	Annualized		Management Fees	Other Expenses	Total Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	3 Years	5 Years	Management Fees	Other Expenses	Total Expenses
Low	ING Fixed Account	Current Interest Rate for 4Q is 4.0%*				—	—	—
	ING Intermediate Bond	1.13%	3.75%	3.71%	5.01%	0.49%	0.30%	0.79%
	Vanguard Total Bond Market Index — Adm	1.37	4.36	3.73	4.70	0.11	0.00	0.11
	Lehman Aggregate Index	1.24	4.33	3.70	5.06
Medium	ING Balanced	4.49	9.33	7.21	5.36	0.60	0.60	1.20
	Calvert Social Inv. Balanced	3.85	8.12	6.91	4.82	0.92	0.60	1.52
	60%/40% S&P 500/ LB Agg	4.49	11.11	7.77	5.99
	Fidelity VIP Equity Income	7.45	19.48	11.71	8.31	0.56	0.60	1.16
	Russell 3000 Value Index	8.10	22.34	15.20	11.20
	ING Van Kampen Comstock	5.87	15.50	11.44	N/A	0.85	0.60	1.45
	Russell 1000 Value Index	8.00	22.25	15.09	10.86
High	ING Stock Index	6.48	14.83	N/A	N/A	0.27	0.60	0.87
	S&P 500 Index	6.70	15.79	10.44	6.19
	Vanguard Total Stock Market Index — Adm	7.07	15.63	11.37	7.49	0.09	0.00	0.09
	MSCI US Broad Market Index	7.12	15.72	11.42	7.57
	ING Growth	3.34	2.04	5.74	1.59	0.69	0.60	1.29
	ING T. Rowe Price Growth Equity	6.30	12.62	9.14	5.22	0.75	0.60	1.35
	Fidelity VIP Growth	3.40	6.21	4.70	1.04	0.67	0.60	1.27
	Russell 1000 Growth Index	5.93	9.07	6.87	2.69
	ING Index + Mid Cap	6.20	8.79	11.68	9.89	0.49	0.60	1.09
	S&P 400 Index	6.99	10.32	13.09	10.89
	ING T. Rowe Price Diversified Mid Cap Growth	7.05	8.45	8.44	5.05	0.66	0.60	1.26
	Russell Mid Cap Growth Index	6.95	10.66	12.73	8.22
	ING Oppenheimer Main Street Sm Cap	8.34	14.31	14.03	12.25	0.81	0.60	1.41
	Russell 2000 Index	8.90	18.37	13.56	11.39
	ING Baron Small Cap Growth	10.19	14.85	16.15	N/A	1.08	0.60	1.68
	Russell 2000 Growth Index	8.77	13.35	10.51	6.93
	ING International Value	11.39	28.67	17.77	12.13	1.00	0.60	1.60
	MSCI-EAFE Index	10.40	26.86	20.41	15.43
	Oppenheimer Global Securities	8.45	17.27	14.91	N/A	0.66	0.60	1.26
	MSCI-World Index	8.47	20.65	15.23	10.49

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AIG VALIC
		Return on Investments (net of expenses)				Operating Expenses
Rates of Return as of December 31, 2006						Operating Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	Annualized		Management Fees	Other Expenses	Total Expenses
Level of Risk	Investment Options	Quarter to Date	Year to Date	3 Years	5 Years	Management Fees	Other Expenses	Total Expenses
Low	VALIC Fixed-Interest Account	Current Interest Rate for 4Q is 3.75%*				—	—	—
	Vanguard Long Term Bond Index	1.14%	2.31%	5.06%	6.77%	0.18%	0.35%	0.53%
	Lehman LT Gov./Credit Index	1.05	2.73	5.51	7.39
	Vanguard Intermediate-Term Invest-Grade Bond	1.41	4.08	3.35	5.11	0.21	0.35	0.56
	Lehman Credit Index	1.34	4.27	3.81	5.90
Medium	Munder Asset Allocation Balanced A	4.89	9.88	8.61	6.08	1.47	0.35	1.82
	American Funds American Balanced A	4.57	11.43	7.50	7.24	0.59	0.35	0.94
	60%/40% S&P 500/ LB Agg	4.49	11.11	7.77	5.99
	American Funds Investment Co. of America A	5.28	15.55	10.41	7.59	0.55	0.35	0.90
	MFS Value A	7.53	20.28	13.44	9.36	1.16	0.35	1.51
	Russell 1000 Value Index	8.00	22.25	15.09	10.86
High	Pioneer A	5.37	16.00	11.01	6.15	1.08	0.35	1.43
	Dreyfus S&P 500 Index	6.47	14.85	9.54	5.28	0.50	0.35	0.85
	Calvert Social Inv. Equity	4.62	9.79	6.59	4.56	1.25	0.35	1.60
	S&P 500 Index	6.70	15.79	10.44	6.19
	Oppenheimer Captial Appreciation A	4.42	7.14	5.84	2.33	1.06	0.35	1.41
	Russell 1000 Growth Index	5.93	9.07	6.87	2.69
	T. Rowe Price Science & Technology	7.78	6.73	3.32	-0.35	1.00	0.35	1.35
	S&P Technology Index	6.12	8.42	3.94	0.68
	Turner Mid Cap Growth	5.63	6.36	9.52	5.52	1.16	0.35	1.51
	Russell Mid Cap Growth Index	6.95	10.66	12.73	8.22
	Neuberger Berman Genesis Trust	6.25	6.89	13.57	13.16	1.10	0.35	1.45
	Russell 2000 Value Index	9.03	23.48	16.48	15.37
	American Funds EuroPacific R3	8.48	21.03	20.04	14.34	1.15	0.35	1.51
	MSCI-EAFE Index	10.40	26.86	20.41	15.43
	Oppenheimer Global A	8.39	16.99	16.21	11.54	1.08	0.35	1.43
	MSCI-World Index	8.47	20.65	15.23	10.49

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Important Changes to Your Investment Fund Lineup

The investment options in the Plan are currently offered through three financial services organizations and are periodically reviewed and monitored by the Plan’s Advisory Council. From time to time you may see new options being added and some options being replaced due to a variety of reasons. For example, if one option is not performing well, it may be replaced with an option that has similar investment objectives but better performance. When an investment option is replaced, any money you have invested in that option may remain in that option if you choose, but any new contributions will automatically be redirected to a designated replacement option. When this happens you may want to evaluate where your money is currently invested and determine what, if any, actions you should take. Please contact your financial services organization for more information on the following investment option changes.

ING Financial Advisors, LLC

If you selected the following investment option…	Your contributions will be directed to…	Reason for the investment change
ING Growth, or Fidelity VIP Growth	T.Rowe Price Growth Equity (Current investment option)	T.Rowe Price Growth Equity option has a more stable management team and stronger investment results when compared to similar options or indices in the marketplace. The T.Rowe Price Growth Equity option has posted better risk adjusted returns and maintains an expense ratio below that of the median manager.
Calvert Social Balanced	Pax World Balanced (New investment option)	The Pax World Balanced option has a longer tenured manager and stronger investment results when compared to similar options or indices in the marketplace. The Pax World Balanced option has posted better risk adjusted returns and maintains an expense ratio below that of the median manager.
Fidelity VIP Equity Income	T.Rowe Price Value (New investment option)	The T.Rowe Price Value option posted stronger investment results when compared to similar options or indices in the marketplace. The fund also has posted better risk adjusted returns and maintains an expense ratio below that of the median manager.

NOTE: In addition to the above changes, the Fidelity VIP Contra Fund will be open to accepting new contributions. The daily asset charge assessed to the ING Stock Index Portfolio will be eliminated effective May 21st in conjunction with the changes described above.

Additional investment fund lineup changes will be covered in the upcoming issues of the newsletter. Please contact your financial services organization for more information or with any questions regarding your investment options.

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Advisory Council on Tax Deferred Arrangements

Commissioner, Department of Administrative & Financial Services
Rebecca M. Wyke, Chair
Designee: Alicia Kellogg, Co-Chair
Director, Bureau of Human Resources
Contact info: alicia.kellogg@maine.gov

Superintendent of Insurance
Eric Cioppa
Designee: Stuart Turney
Insurance Examiner in Charge
Contact info: stuart.e.turney@maine.gov

Superintendent of Financial Institutions
Lloyd P. LaFountain, III
Designee: Robert B. Studley
Principal Bank Examiner
Contact info: robert.b.studley@maine.gov

MSEA

Kathryn J. Latulippe, Administrative Unit
Contact info: 207-624-8441 or kathryn.j.latulippe@maine.gov
Steven Keaten, Professional-Technical Co-chair
Contact info: 287-9215 or steven.keaten@maine.gov
Ginette Rivard, Supervisory
Contact info: ginette.rivard@maine.gov
Peter Grant, Operations & Maintenance (appointment pending)
Contact info: 624-3900 or peter.grant@maine.gov

MSLEA

Steven M. Courture, Law Enforcement
Contact info: steve.couture@maine.gov

AFSCME

Patrick Murphy
Contact info: pmurphy42@hotmail.com

Maine State Troopers

Michael T. Edes (appointment pending)
Contact info: michael.t.edes@maine.gov

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If you have any questions about the information in this newsletter, please contact your financial services organization representative or the State’s Office of Employee Health and Benefits at 207-287-6780 inside Maine or 1-800-422-4503 outside Maine.

The Hartford

Augusta: 207-623-8421
Portland: 207-761-4733
In Maine: 1-800-640-8787
Outside Maine: 1-888-457-7824

www.retire.hartfordlife.com

ING Financial Advisers, LLC

Augusta: 207-622-4882
In Maine: 1-866-826-8063
Outside Maine: 1-800-238-8458

www.ingretirementplans.com

AIG VALIC

In Maine: 207-771-5378
1-800-892-5558, ext. 88631
Outside of Maine: 1-888-568-2542

www.aigvalic.com