115. Make $1,000-$2,000 per year – Get the retirement tax credit
The retirement tax credit is designed to give moderate- and low-income taxpayers an incentive to save for retirement. If you make a contribution to your retirement account, that money isn't taxed currently. So it's like you get a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. That's as much as a $1,000 reduction in your tax.
You get the $1,000 tax reduction as well as the $2,000 reduction in your income. That's a nice rate of return on a $2,000 investment. Moreover, if you qualify, you can deduct as much as $5,000 ($6,000 if you're 50 or older) in contributions to an IRA.
The tax credit disappears as your adjusted gross income increases. But singles with adjusted gross incomes up to $28,250 and joint filers with AGIs up to $56,500 qualify. The limit is $42,375 for heads of households.
Contributions to 401k's, 403b's, Simplified Employee Pension plans, traditional and even Roth IRAs qualify.
You may qualify for the retirement tax credit if you are:
- 18 or older,
- Not a full-time student,
- Not claimed as a dependent on someone else’s return, and
- Have an adjusted gross income in 2011 of not more than $56,500 if married and filing jointly, $42,375 if head of household, or $28,250 if you’re single, married filing separately or qualifying widow(er).
- Made contributions to a traditional or Roth IRA, 501(c)(18) plan, or elective deferrals to a 401(k), Simple IRA, SARSEP, 403(b) annuity or governmental 457(b) plan
Use Form 880 to find out the amount of your retirement savings contributions credit and include that amount on your tax return. Talk to your tax adviser.
