Many people who live in and work in the United States wonder about retirement savings contribution credit and how it works for you and your tax situation.
Retirement Savings Contribution Credit – What Is It And How Does It Work?
Retirement savings contribution credit is now known as “Savers Credit”. Since so many people still refer to the Savers Credit as the retirement savings contribution credit, we will use both terms in this article.
Taxpayers are eligible for this credit if they make specific contributions to either a retirement plan sponsored by your employer or make eligible contributions to your own individual retirement account.
In addition to simply making contributions, there are also income limits to the savers credit.
The income limit varies depending on whether or not you happen to be a single person, the head of household for your family, or if you are a married couple and are filing your taxes jointly. You need to check to see what that limit is for your specific filing status.
There are also eligibility requirements for individuals to meet as well. For example, you must be over eighteen years old, you cannot be a full-time student, and no one else is claiming you as a taxable dependent on their tax return.
How Much Is The Retirement Savings Contribution Credit?
If you meet the eligibility requirements, than the next thing you want to know is probably how much the credit is. If you are filing your taxes as a single person or as a married person filing separately, then you may be able to take a tax credit of up to $1,000.
However, if you happen to be married and you and your spouse are filing your tax return together, than you can take up to $2,000.
The specific amount varies based on both the qualifying contribution amount and your income level. Individuals with the least income have the highest percentage of a tax credit for the savers credit.
How To Get Retirement Savings Contribution Credit?
If you have received any distributions from your retirement plans, you have to include that figure into your calculations when figuring out the retirement savings contribution credit.
This is not just for the current tax year either, you have to look to see if you have received any distributions for both two years before you take the credit as well the current tax year.
Not only that, but you also have to look at distributions for the period after the end of the credit year but before the tax return filing due date. This includes extensions so; make sure that you are looking at all of the applicable numbers when completing your calculations.
Taking the retirement savings contribution credit does not prevent you from also receiving other tax savings from making retirement contributions.
For example, if you currently are able to deduct all or part of the contributions you make to an Individual Retirement Account (IRA), than you should be able to still take advantage of this tax benefit.
The retirement savings contribution credit, or the savers credit, is one tax program that is designed to help you plan for your future, and should be definitely investigated if you think that you might be eligible.
Another Way To Save For Your Retirement:
Most people live on the “Anti-Wealth Plan” their entire lives. The “plan” is also known as the 40/40/40 plan. That is, you work 40 hours a week for someone else for 40 years and retire with $40 in the bank!
This is of course an exaggeration, but the United States Social Security Board has reported that by the age of 65, 85 out 100 Americans do not have more than $500 in savings.
Only 2% will be self-sustaining and the rest will be dependent on the family, the government or the church.
The main problem with a normal 9 to 5 day job is that when you stop working, the money stops as well!
It Is Very Important To Understand One Thing!
It is impossible to get wealthy by trading hours for money. In order to acquire real wealth, you must tap into at least one of the following:
- #1. Residual income
- #2. Leveraged income
What Is Residual Income?
You can earn residual income from work you do only once. This income keeps coming in automatically month after month, year after year. A good example of residual income is royalty earnings. For instance, you have written a book and are now getting paid forever on it.
What Is Leveraged Income?
You can earn leveraged income through other people´s efforts. There is only 24 hours in a day, there is only so much you can do per day through your own efforts.
A company called SFI offers you the possibility to earn both residual and leveraged income from home. This is something you should consider. It is especially important when we live in an uncertain economy. We can save for our retirement all our lives, but it is uncertain that we really get the money in the end.
It is good to have other options and SFI is something you should consider if you are worried about your retirement.
Retirement Savings Contribution Credit – FAQ:
Q: Do I qualify for retirement savings contribution credit?
A: As a tax payer in the United States, you are eligible for this credit when you make specific contributions. The contribution can be to your own retirement plan which is sponsored by your employer, or it can be to your individual retirement account.
Q: How to calculate retirement savings contribution credit?
A: The calculation is a bit complex. Here is more information about how it works.
Q: How much is the retirement savings contribution credit?
A: For a single person it can be up to $1,000. If you are married, it can be up to $2,000, because you and your spouse are filing the tax return together.