Using Tax Credit To Save For Retirement

The reasons why Americans are not efficient at saving for retirement is not unknown. To rectify this scenario, the government has come up with tax credit offers.

Using Tax Credit To Save For Retirement

The reasons why Americans are not efficient at saving for retirement is not unknown. To rectify this scenario, the government has come up with tax credit offers.

As baby boomers enter retirement, social security is likely to go under siege. Luckily, a lot of baby boomers have invested considerable sums in 401ks and IRAs. Even than, a sad fact remains that people refrain from putting in their best efforts where retirement is concerned. The American Government is focusing on encouraging taxpayers to save a considerable amount for retirement and using the tax credits strategy to accomplish this goal.

The tax credit being discussed here is the Retirement Savings Contributions Credit. Those who are eligible for it would be entitled to a credit of $1000 in case of singles and $2000 in case of joint filing. Those individuals who contribute to 401ks and retirement vehicles are eligible for this tax credit. The amount of credit you are entitled for would depend on your income and contribution.

The following categories of people are eligible to claim the retirement savings tax credit:

  1. Individual taxpayers who earn $25,000 or less.
  2. Individual taxpayers who are head members of their homes and have an income of $37,500 or less.
  3. Married couples with a total income of $50,000 or less and filing jointly.

Some small restrictions apply to the eligibility for claiming tax credits. To begin with, only those who are 18 or more of age are eligible to apply for tax credits. Full time students are outside the gamut of tax credits. Also, a second dependent is not allowed to claim you as a dependent on their tax returns.

It is a significant fact that the aforementioned tax credit is over and above other tax advantages you acquire from investing in a retirement account. For example, in the context of a 401k, though you can pound in pre-tax income, it eats into your gross income for the tax year. Once the taxpayer has calculated their taxes, they can deduct another $1000 on account of the tax credit. In other words, it doesn’t take a lot to save up for your retirement.

The Federal Government is strongly urging taxpayers to save money for retirement period. With the tax credit by the government in place, that shouldn’t be a difficult task for individuals either.


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