Is Your Household Leaving This (up to $2,000) Tax Perk on the Table?

black couple doing taxesOne of the fiscal perks of the U.S. Tax Code is the Retirement Savings Contributions Credit (or Savers Credit), which basically pays a dollar-for-dollar non-recourse credit of up to $1,000 (or $2,000 for married filing jointly) to certain taxpayers for retirement savings.

Obviously, this could be a pretty sweet deal for those who are eligible because it’s a direct dollar-for-dollar reduction in taxes which could wipe out any tax owed – down to zero. But most of those who qualify aren’t even aware that any such thing exists – not that I’m blaming them, though. In fact, a recent study by the TransAmerica Center for Retirement Studies found that only 12 percent of those households earning less than $50,000 a year were aware of this valuable perk.

Interestingly enough, whenever this comes up during one of the Continuing Professional Education courses we offer, you’d be lucky to find more than a couple – literally speaking, here – in a roomful of retirement/financial professionals who knows about the Savers Credit. Seems fair to unload some responsibility for the lack of awareness here, doesn’t it? To be eligible:

  • You must be at least 18 years old.
  • You must not be a full-time student.
  • No one else may claim a dependent exemption for you on their tax return.
  • Your Adjusted Gross Income (AGI) may not exceed certain limits, depending on your filing status.

Depending on your AGI and filing status, the credit is calculated as one of three percentages (10 percent, 20 percent, or 50 percent) of the first $2,000 that you contribute to your 401(k), 403(b), 457, SEP, traditional IRA, or even Roth IRA. Thing to note here is that you receive this credit only on “your own” contributions, not any portion of your employer’s contribution.

Like most tax stuff, the AGI thresholds change frequently. For the 2012 tax year, you’d get:

Amount

of   Tax Credit

Single,   Married Filing Separately, or Qualified Widow/er

Head of Household

Married Filing Jointly

50 %

AIG up to $17,250 AIG up to $25,875 AIG up to $34,500

20 %

AIG between $17,251
and $18,750
AIG between $25,876
and $28,125
AIG between $34,501
and $37,500

10 %

AIG between $18,751
and $28,750
AIG between $28,126
and $43,125
AIG between $37,501
and $57,500

As you can tell, the lower the income, the higher the credit because it is intended to help low- to moderate-income taxpayers who save for retirement.

Here are a couple final key points. Even if you’re already retired, collecting a pension, and saving money in, say, a Roth IRA, you can still claim this credit, insofar as you meet the income and dependent requirements. Also, it is extremely critical to note that this credit is not available to folks who use Form 1040-EZ to file. To claim the Savers Credit, you must use the 1040, 1040-A, or 1040-NR form.

Any questions or concerns about your finances and retirement investments? Call 877.656.9111 or visit LaserFG.com to schedule your no-strings-attached consultation TODAY!

________________

Samuel N. Asare, MBA, CRPC, CMFC, CLU, CTP, CBM, is a noted retirement planner and the senior strategist at Laser Financial Group. His firm trains financial professionals on a variety of retirement-related subjects. Samuel has authored several personal finance publications, designed instructional videos, training workshops, and is featured regularly in various media outlets. You can read his acclaimed blog at LaserFG.blogspot.com, call 877.656.9111 to schedule a complimentary, no-obligation consultation, follow him on twitter@LaserFG, and get practical insights at LaserFG.com.

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Samuel Asare MBA, CRPC, CMFC, CTP

Samuel Asare MBA, CRPC, CMFC, CTP

Samuel N. Asare is the senior strategist at Laser Financial Group, a regular columnist/commentator for various national and regional publications, author of Proven , Common-Sense Wealth Building blog, and four personal finance books. He holds an MBA and is a Chartered Retirement Planning Counselor, a Charted Mutual Fund Counselor, a Certified Treasury Professional, and a Certified Business Manager. To get more straight-forward retirement insights, visit LaserFG.com, or connect at facebook.com/LaserFG.

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