Sunday, March 9, 2014

Saving For Retirement? Wrangle a Credit Out Of It!!

Warren Buffet, the modern day Guru of all-things-financial, the Investing Pundit of the 21st century, has said "No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant.” There is truth in this statement for all but especially for those who are in the lower income brackets, or those starting on their career paths, saving a little over time adds up! 

 So you just got a job or you are one of those who are thinking of starting up your retirement basket, the Internal Revenue Service (IRS) has an incentive for you. It's called the "Saver's Credit". It is available to you if you contribute to a 401K or an IRA. 

The credit is worth $2000 to taxpayers filing with the "Married Filing Joint" status and worth $1000 to those filing "Single". So you can see that the amount of credit depends on your filing status. 

The eligibility for the credit also depends on your annual income (the following are for 2013 Tax Year): 
  • Married filing separately or a single taxpayer with income up to $29,500
  • Head of household with income up to $44,250
  • Married filing jointly with income up to $59,000

This credit is further restricted by the following rules: 

  • You must be at least 18 years of age.
  • You can’t have been a full-time student in 2013.
  • You can’t be claimed as a dependent on another person’s tax return.

The retirement contribution has to be made by the end of the year, however an IRA contribution can be made before April 15th to qualify for the credit. It is claimed on Form 8880. 
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You can see the income thresholds to be eligible for this credit are phased out at lower amounts.  Maybe it is an incentive for taxpayers with lower incomes to save for their retirement, but something to be considered nonetheless. There is an Indian saying that roughly translates as "Little drops of water make pearls"! I tell my younger clients that it's never too early to start saving for retirement, one can be eligible for this credit in addition to tax savings that IRAs/ 401Ks provide. 


Bibliography: Form 8880

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website, www.mntaxsolutionsllc.com