Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.
The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of $1,000 for singles and $2,000 if you’re filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.
You can claim the retirement savings tax credit:
1. Individual taxpayers with incomes of $25,000 or less.
2. Individual taxpayers that are head of households and make $37,500 or less.
3. Married couples filing jointly who make $50,000 or less cumulatively.
There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you can’t be a full time student. Finally, another dependent can’t claim you as a dependent on their tax returns.
Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another $1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.
The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.
