“The Government Will Actually Pay Me to Save?”
As incredible as the title may seem, it can be true for certain taxpayers. To assist lower income taxpayers in saving for their retirements, the Retirement Savings Contribution Credit was introduced in 2001. This credit is a “subsidy” of up to $1,000 for an individual filer and $2,000 for those married filing jointly. In order to be eligible, the taxpayer(s) must be over 18, not be a full-time student and not be claimed as a dependent on someone else’s tax return. Obviously, retirement plan contributions must have been made in the tax year for which the credit is being claimed. Also, keep in mind that tax credits are more valuable than tax deductions since credits offset tax liabilities on a dollar-for dollar basis.
The credit is a percentage of the amount that the taxpayer(s) contributes to an IRA or qualified employer sponsored retirement plan. It is claimed on Form 8880 and it can be either 10%, 20% or 50% of the amount contributed. This percentage is calculated on the form and is available in tax year 2021 for the following ranges of Adjusted Gross Incomes:
- Head of Household–$0-$49,500
- Married Filing Jointly–$0-$66,000
The IRS notes that millions of dollars of this credit go unclaimed by eligible taxpayers every year. This is because the taxpayers are not aware of it and fail to include the claim on their tax return. Even a highly trained CPA will fail to claim it if their client does not inform them that eligible retirement contributions have been made. This money is “free for the asking” but we must simply “ask”!
If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.