If you're like other Americans, you may be having problems finding a way to save for the retirement or do any type of tax planning. Even with the tax break of placing money in retirement accounts, workers that make less than $40 - 50,000 per year might be strapped to find room in their finances for a qualified plan contribution, especially if they have dependents. Once the mortgage, car payment, insurance, utilities as well as other monthly cost of living have been paid, there may be little or nothing left to save.
However there is a tax planning instrument for cash-strapped employees to have the ability to either start or at least improve their retirement savings by a few hundred us dollars every year. The Economic Growth and Tax Relief Act of 2001 created a whole new retirement incentive called the Retirement Saver's Tax Credit. It is a non-refundable credit that may reduce any eligible taxpayer's total tax owed on a dollar-for-dollar basis, based upon the amount the taxpayer contributes to his or her retirement plan or Individual retirement account.
|Credit Rate||Married Filing Jointly||Head of Household||All other filers|
To qualify for the retirement saver's tax credit, you must be at least 18 years old and can't be a full-time student with another person declaring you as a dependent on their tax return. This tax planning instrument can be used in addition to any deductions that you simply may claim as a result of creating retirement strategy contributions. Any participation to a conventional or Roth Individual retirement account, SEP, Simple Individual retirement account, 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 amount up to $2,000. This places the highest achievable credit quantity at $1,000 (up to $2,000 credit if filing jointly and each partner contributes $2,000 or more to a retirement plan). The above table breaks down the quantity of credit that may be claimed.
The lower your adjusted gross income is, the higher the credit. For example, 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). As a result, if you find your self above these income thresholds but just a little, some tax planning can help you engineer your income to potentially meet the requirements for the credit.
If you are behind in preparing for retirement and want to make use of this tax planning opportunity to start catching up, make use of what IRS offers with this tax planning tool.
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