Free Money Inside
Saving for retirement isn’t easy.
However, a special tax incentive can help millions of Americans by making saving for retirement a whole lot easier.
I’m talking about the Retirement Savings Contributions Credit, also commonly referred to as the “Saver’s Credit.”
Are You Missing Out?
Unfortunately, most Americans who could be helped the most from this fantastic tax break that results in near-free retirement money don’t even know about it.
A survey from the Transamerica Center for Retirement Studies showed that only 12% of American workers with annual household incomes of less than $50,000 even knew about the Saver’s Credit.
The IRS provides an additional incentive through a special tax credit designed specifically for low- and moderate-income taxpayers to help encourage saving more for retirement.
The key word is “credit.” This is not a deduction. It’s a credit.
Tax credits are a dollar-for-dollar reduction of your tax liability and could reduce your income tax liability all the way to zero.
Are You Eligible?
In order to qualify for the Saver’s Credit you must:
- Be at least 18 years of age
- Not be a full-time student
- Not be claimed as a dependent on someone else’s tax return
- Make eligible contributions to an IRA or employer-sponsored retirement plan for the tax year in which you want to claim the tax credit.
How much of a tax credit you receive — from 10% to 20% to 50% of your retirement plan contribution — varies with how much you make and maxes out at $2,000 (or $4,000 for married couples filing jointly).
For 2018, your adjusted gross income must be less than $31,500 to be eligible if filing single, or $63,0oo if filing married.
For example: John is married and files a joint tax return with his wife. They have a combined income of $38,500, but John is the sole breadwinner, so his wife had no earned income.
John would like to put money away for retirement and puts $2,000 into a Roth IRA. John is eligible for a 20% tax credit, or $400, on that $2,000 IRA contribution.
If instead John puts that same $2,000 into a traditional IRA, his adjustable gross income, or AGI, is reduced to $36,500, which qualifies him for the 50% tax credit. The traditional IRA boosts the tax credit from $400 (20%) to $1,000 (50% of $2,000).
Note: There are two tax-filing wrinkles to claiming the credit:
Wrinkle #1: You do have to file an extra form — IRS Form 8880, “Credit for Qualified Retirement Savings Contributions.”
Wrinkle #2: You must file your taxes using Form 1040, 1040A or 1040NR to claim the Saver’s Credit. You cannot use Form 1040EZ to file your taxes.
Look, I know that saving money isn’t easy and you know that you should be saving money for retirement. But thanks to the Retirement Savings Contributions Credit, it is easier than ever.
And more importantly, who doesn’t love free money?
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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