Uncle Sam’s tax incentives for investing in a retitement plan
Saver’s Credit
You can get an income tax credit of up to $1000 for a single tax payer or up to $2000 if married filing a joint tax return by contributing to a qualified retitement plan ( 401(k), 403(b) etc.).
Eligibility Criteria
In order to be eligible for the saver’s credit the following conditions must be satisfied.
An individual must be of at least 18 years old by the end of the tax year. The individual must not be a Full-Time student. No one claim you as a dependent.
The saver’s credit is a non-refundable credit, which means Saver’s credit can increase your refund or reduces taxes you owed. However it will not reduce your tax liability below $0.
Amount of Credit
The amount of credit will depend on your contributions to a qualifying retirement plan and your adjust gross income. The maximum contrbution amount you can use for Saver’s credit calculation is $2000.
The following table shows the allowable credit for 2011.
|
Credit Rate
|
Married Filing Jointly
|
Head of Household
|
All other Filers
|
| 50% of contribution |
$0 - $34,000
|
$0 - $25,500
|
$0 - $17,000
|
| 20% of contribution |
$34,001 - $36,500
|
$25,501 - $27,375
|
$17,001 - $18,250
|
| 10% of contribution |
$36,501 - $56,500
|
$27,376 - $42,375
|
$18,251 - $28,251
|
| 0% of contribution |
$56,501
|
$42,376
|
$28,251
|
An example:
Consider a 35 year-old, single indvidual who makes $14,500 a year and has contributed $2000 towards his retirement plan. He could get a tax credit of $1000.
Important note:
If you are eligible to claim Saver’s credit on your 2010 tax return, consider on how much more you may be able to contribute and get the maximum allowable Saver’s credit. Afteall this is a free money that uncle Sam contributing to your retirement.