Lower Your Taxes By Saving
Did you know it is possible to lower your taxes by saving for retirement? While there are limitations, the Credit for Qualified Retirement Savings Contributions (Form 8880) may entitle you to a credit on your tax return.
There are limitations on who is eligible to claim this tax credit but it is worth reviewing to see if you meet the requirements. Your adjusted gross income must not exceed $25,000 for single filers ($37,500 for head of household) or $50,000 if married filing jointly. In addition, you must have been born before January 1, 1989 and cannot be claimed as dependent on another person’s tax return.
One last limitation is that you cannot take the credit if during any part of five calendar months in 2006 you were enrolled as a full-time student at a school or took a full-time, on-farm training course given by a school or state, county, or local government agency.
What is the credit?
The Credit for Qualified Retirement Savings Contributions may allow you to take up to a 50% credit on as much as $2,000 in contributions made to a qualified retirement plan such as a Traditional IRA, Roth IRA, 401(k), SEP, etc. The amount of the credit will depend on your income, with the credit decreasing the closer that you are to the income limits.
The really nice thing about this credit is that it is in addition to the deduction on your income that you receive for making the contributions to a qualified retirement plan, excluding any plan that does not offer deductible contributions such as the Roth IRA. As you prepare your taxes for the 2006 tax year, be sure to check your eligibility for this tax credit. You may be able to lower your tax bill due to your diligence in saving for retirement.