If you're like other Americans, you may be somewhat thinking about how to plan for retirement. Even with the tax deduction, workers that make less than $40 - 50,000 annually may be strapped to find room in their finances for a qualified program contribution or IRA contribution, especially if they have dependents. As soon as the home loan, automobile payment, insurance coverage, utilities along with other month-to-month living costs have been paid, there may be little or nothing left to preserve.
However there's a way for cash-strapped workers to be able either to start or have a chance to improve their retirement savings. Although the chance is just for couple of hundred dollars every year, some thing is better than nothing in relaxing concerns about how to plan for retirement. The Economic Growth and Tax Relief Act of 2001 produced a retirement incentive known as the Retirement Saver's Tax Credit. That is a nonrefundable credit that can reduce any suitable taxpayer's total tax owed on a dollar-for-dollar basis, depending upon how much the taxpayer contributes to their retirement program or IRA.
|Credit Rate||Married Filing Jointly||Head of Household||All other filers|
Source: "IRS Announces Pension Plan Limitations for 2010," IR-2009-094, Oct. 15, 2009
To be qualified, you need to be at least 18 years of age and can't be a full-time student with somebody else claiming you as a dependent upon their taxes. In addressing the absence of solutions as to how to plan for retirement, this credit is quite generous as it can be in addition to any deductions which you may claim as a result of making retirement plan contributions. Any kind of payment to a traditional or Roth IRA, SEP, Simple IRA, 401(k), 403(b) or 457 plan will count to the credit. The quantity of the credit will range between 10% to 50% of your qualified contribution quantity up to $2,000. This places the highest feasible credit amount at $1,000 (up to $2,000 credit if filing jointly and each partner contributes $2,000 or more to a retirement plan). The graph breaks down the amount of credit that can be claimed. For many people, this provides an incomplete solution to the concern of how to plan for retirement.
The reduced your modified gross income (AGI), the greater the credit. For instance, if you are married filing jointly, your AGI less than $33,500, and also you each make Roth IRA contributions of $2,000, you will obtain the complete credit of $1,000 each (a total of $2,000). The Pension Protection Act of 2006 made this credit permanent and also added a yearly cost-of-living adjustment for inflation. Preferably, what you learn in this post adds to your understanding of how to plan for retirement with a new choice.