Don’t rule out saving for retirement just because your income is low. We all need to save as much as possible for our later years. And now Congress has extended a tax break that rewards your saving with a lower tax bill.
It’s called the "retirement savings contribution credit" and it was due to expire at the end of this year. But the recent pension law made it permanent and even indexed the income thresholds for inflation, starting in 2007. Here’s how it works.
If you make a contribution to an IRA or a company retirement plan, you could qualify for a tax credit of 10% to 50% of the amount you contribute. The credit directly offsets any taxes you owe for the year, dollar for dollar. The credit applies to the first $2,000 of your contribution.
To qualify, your 2006 adjusted gross income must be below certain thresholds — $50,000 for married filers, $25,000 for singles, $37,500 for heads of household. Children under age 18, students, and dependents aren’t eligible.
It’s never easy to find money for retirement, especially if your income is modest. Remember though, you could receive double or triple benefits by stretching to make a contribution.
In addition to the tax credit, amounts you invest in an IRA or 401(k) plan can reduce your taxable income. And if you contribute to your company 401(k) plan, you may also qualify for matching dollars from your employer.
Please contact our office for more information about this tax break.
Questions for our Financial Expert?
E-Mail us at: finance@ClevelandSeniors.Com
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