Beginning in 2008, there was a change in Federal tax laws which provide a tax-credit for low to medium income earners who put away money into an individual retirement account (IRA) or 401(K) plan at work. The tax credit, called the “Retirement Savings Contribution Credit” will give you a tax credit of 10%, 20% or 50% of the money that you invest depending on your household income.
If you are married filing jointly and make below $32,000 per year, you will qualify for a tax-credit of 50% of your contribution amount. If you are married filing jointly and make below $34,500 and more than $32,000 per year, you will qualify for a tax-credit of 20% of your contribution amount. If you are married filing jointly and make below $53,000 and above $34,500 per year, you will qualify for a tax-credit of 10% of your contribution amount.
If you are single and make below $16,000 per year, you will qualify for a 50% tax-credit on your total contribution amount. If you are single and make below $17,250 and more than $16,000 per year, you will qualify for a 20% tax-credit on your total contribution amount. If you are single and make below $26,500 and more than $17,250 per year, you will qualify for a 10% tax-credit on your total contribution amount.
If you file as head of household and make below $24,000 per year, you will qualify for a 50% tax credit on your total contribution. If you file as head of household and make below $25,875 and above $24,000 per year, you will qualify for a 20% tax credit on your total contribution. If you file as head of household and make below $39,750 and above $25,875 per year, you will qualify for a 10% tax credit on your total contribution.
It’s a great tax credit for lower-income families that qualify for it. There is a maximum credit of $1,000, so if you were able to make a very large contribution to your IRA, Roth IRA or 401(k) plan relative to the income that you make, you may not qualify for the full amount of the deduction.
Remember that you can also decrease your adjusted gross income by investing money into a pre-tax retirement plan. By maximizing your 401(k) contributions and traditional IRA contributions, you will receive a tax deduction for the amount of your contribution regardless of your income.
Ultimately, it pays to save for retirement. You will almost certainly benefit from a tax-deduction since you’re paying the taxes when you take the money out, you may earn a refundable tax credit through the “Retirement Savings Contribution Credit”, and all of the money in your investment accounts will grow tax-free throughout your working life.
Related Content:
- $8000 First Time Home Buyer Tax Credit Can Now Be Applied to FHA Down Payments The guest post was written by Brandon Laughridge of Mortgage Loan Place, a writer for MLP's Mortgage Loan Blog. If you enjoy this article, you cansubscribe to the MLP RSS Feed! The government is trying...
- Money’s 7 New Rules of Financial Security (Part 2) I'm reviewing Money Magazine's 7 New Rules of Financial Security. You can read Part 1 here. Rule No. 4: Borrowing Old thinking: Borrowing sensibly is a good way to build wealth. New rule: Borrow cautiously....
- Do You Qualify For These Common Tax Credits? As you look in your rear view mirror and wave goodbye to the end of the holiday season you can now focus on the next bump in the road. Before you know it tax season will be...
- Save Time, Money and Space in Over 80 Ways If you're looking for handy gadgets, tools and various items that can save you time, money or space (or all three!) this list of more than 80 top products is just what you need. Everyone's...
- Extended Home Buyer Tax Credit May Not Be Good For Existing Buyers You may have heard that that First Time Home Buyer Tax Credit was extended until April 30th, 2010. In that extension a new group of home buyers were included - Existing Home Buyers! The credit...
Recent Comments