Don't Miss Out on this Tax Credit Break
If you are constantly having to preach the virtues of retirement savings to clients in the low to mid income range, then you both could benefit from a new tax incentive. It could also help those who keep procrastinating to finally take the plunge. Due to a vastly underpublicized take break for those making retirement contributions, some tax payers could reduce their current tax bills whilst at the same time collating their fund for the future.
The IRS has recently reminded taxpayers of this little nugget called the 'Retirement Savers Credit'. How it works is the RSC is applied to your first $2000 worth of voluntary contributions which you make to a recognised retirement plan, such as a 401(k) or an IRA. Even though taxpayers can contribute up to their permissible annual limit. For those taxpayers ho fall into the lowest income bracket, the credit is equal to 50% of their qualified contribution.
This is reduced to 20% for the next income bracket, and 10% for the top group. Get hold of form 8880 and using the instructions you can figure out your own credit. For the 2013 federal income returns which client will be filing next year, the credit will be available to;
Married couples who are filing jointly with a joint income of up to $59,000
Heads of households who have an income of up to $44,250
Married individuals who prefer to file separately and singles who have an income of up to $29,500
Retirement Savings Credit seems to have fallen under the radar thus far. For the tax year 2011, the most recent year for which figures are available, the IRS has said that the total credits added up to just over $1.1bn over almost 6.4m income tax returns. The average credit worked out at $215 for those making joint files, heads of household got $166 and single filers got $128.