If you're like other people in America, you may be having difficulty saving for your retirement and want sound retirement advice. Even with the tax deduction, workers that make less than $40,000 - $50,000 per year might be strapped to find room in their budgets for a qualified plan contribution (e.g. 401k plan), especially if they have dependents. Once the mortgage, car payment, insurance coverage, utilities and other monthly living expenses have been paid, there may be little or nothing left.
But here's some advice for cash-strapped workers to be in a position to either begin or at least improve their retirement savings by a few hundred dollars every year. The Economic Growth and Tax Relief Act of 2001 produced a retirement incentive known as the Retirement Saver's Tax Credit. This is a non-refundable credit that can reduce any eligible taxpayer's total tax owed on a dollar-for-dollar basis, based upon how much the taxpayer adds to their retirement program or IRA.
| Credit Rate | Married Filing Jointly | Head of Household | All other filers |
| 50% | $0-$33,500 | $0-$25,125 | $0-$16,750 |
| 20% | $31,501-$36,000 | $25,126-$27,000 | $16,751-$18,000 |
| 10% | $36,001-$55,500 | $27,001-$41,625 | $18,001-$27,750 |
Eligibility to follow this retirement advice, requires you to be at least 18 years old and not be a full-time student with another person claiming you as a dependent on their tax return. This credit may be in addition to any deductions which you could claim because of depositing retirement plan contributions. Any contribution to a traditional or Roth IRA, SEP, Simple IRA, 401(k), 403(b) or 457 program will count towards the credit. The amount of the credit will range from 10% to 50% of your eligible contribution to as much as $2,000. This places the best possible credit at $1,000 (as much as $2,000 credit if filing jointly and every partner contributes $2,000 or more to a retirement program). The chart breaks down the amount of credit that can be claimed.
The most effective retirement advice it to make and conserve as much as possible. The lower your adjusted gross income (AGI), the higher the credit. For example, if you're married filing jointly, your AGI less than $33,500, and also you each make Roth IRA contributions of $2,000, you will obtain the full credit of $1,000 each (a total of $2,000). The Pension Protection Act of 2006 created this credit permanent and also added an annual cost-of-living modification for inflation.
It seems impossible for anyone to have funds to make retirement contributions even with the credit. However, should you have a low-income but inherit money or refinance your home (both are sources of cash that do not increase your income), you can use those or any funds to place into retirement accounts and qualify for the credit.
If you are behind in saving for retirement we hope this retirement advice can help you make some headway.
Great tips here. Question - do you think it is important to pay off credit card debt before commencing retirement savings? Although I understand that "starting early" is always good, it seems that the money "lost" through CC interest rate is greater than the rate of return from investments - what do you think?