Every year Congress the IRS comes out with a new set of changes to the tax law in hopes to make the system more equitable and fair. It doesn’t turn out that way, but sometimes they come up with a good idea here and there. One of the positive changes this year is that there’s now a tax credit for low income earners who put money away for retirement.
As of this year, if you put money away into a 401k plan at work or through an IRA plan that you’ve started yourself, the federal government will match your money as much as fifty percent! If you are a single person and make less than $15,000 a year, you can get a fifty percent match to your contribution up to $1,000. If you’re single and make between $15,000 and $25,000 a year, you can still earn a match, but it will be at a rate of ten or twenty percent. If you’re the head of the household and your spouse does not work, you can earn up to $37,500 and still qualify for a match.
Married couples can earn more and still qualify for this tax credit. Couples with adjusted gross income of less than $30,000 can earn a 50% match on any money up to $2000. Couples with an AGI between $30,000 and $32,500 can earn a 20% match, and couples with an AGI between $32,500 and $35,501 can receive a 10% match.
The deal gets even sweeter when you consider the fact that you will not only get a tax credit on the money, but you will also never have to pay a dime in taxes on the money if you put into a Roth IRA. A Roth retirement account is just about the best thing we’re offered tax-wise when it comes to saving for retirement. However, very few people actually take advantage of it. You can put up to $4000 a year into a Roth. If you can’t max it out the first year, start small and try to save a little bit more money each month.
This tax credit is a great way for people who make lower incomes to get some extra money for retirement. It’s often hard to put money away for the future when your daily living expenses are such a large percentage of your take-home pay. Thanks to this tax-credit, low income earners will be able to put money away, and have even more be put into their retirement accounts.