If you're like other Americans, you might be to some degree worried about your retirement financial planning and having sufficient savings. Even with the tax deduction, workers that make less than $40 - 50,000 each year may be strapped to find room in their budgets for a qualified plan (e.g. 401k, plan) contribution or IRA contribution, particularly if they have dependents. As soon as the home loan, car payment, insurance coverage, utilities and other monthly living expenses have been paid, there may be little or nothing left to save.
However there is a way for cash-strapped employees to be able to either start or get a chance to improve their retirement savings. Even though the opportunity is only for $2,000 annually, some thing is a lot better than absolutely nothing in calming worries about retirement financial planning. The Economic Growth and Tax Relief Act of 2001 created a retirement incentive known as the Retirement Saver's Tax Credit. This is a nonrefundable credit that can reduce any suitable taxpayer's total tax owed on a dollar-for-dollar basis, depending upon how much the citizen contributes to his or her retirement plan or IRA.
|Credit Rate||Married Filing Jointly||Head of Household||All other filers|
Source: "IRS Announces Pension Plan Limitations for 2010," IR-2009-094, Oct. 15, 2009.
To be eligible, you must be at least 18 years of age and cannot be a full-time student with somebody else claiming you as a dependent upon their tax return. In addressing the lack of solutions for retirement financial planning, this credit is fairly favorable because it can be in addition to any deductions that you could claim as a result of making retirement plan contributions. Any contribution to a conventional or Roth IRA, SEP, Simple IRA, 401(k), 403(b) or 457 program will be included towards the credit. The amount of the credit will range from 10% to 50% of your qualified contribution amount up to $2,000. This places the highest feasible credit quantity at $1,000 (up to $2,000 credit if filing jointly and each spouse provides $2,000 or more to a retirement program). The chart breaks down the amount of credit that can be claimed. For many people, this provides an incomplete answer to the concern of how to plan for retirement.
The lower your modified gross income (AGI), the higher the credit. For instance, if you're married filing jointly, your AGI less than $33,500, and you each make Roth IRA contributions of $2,000, you will receive the complete credit of $1,000 each (a total of $2,000). The Pension Protection Act of 2006 made this credit long term and also included a yearly cost-of-living adjustment for inflation. Subsequently, what you learn in this post adds to your knowledge of your retirement financial planning with a new option.