Countdown Tip No. 3: Reduce your taxes by saving for retirement.
Countdown to April 15 — last-minute tips
Haven’t filed your taxes yet? Check out The Tribune’s Countdown to Tax Day series with information that can help as the deadline approaches:
April 4 » Where to get free help
April 5 » How to avoid tax scams
April 6 » The joys of filing electronically
Sunday » What’s the Earned Income Tax Credit?
Tuesday » Don’t miss out on the Child and Dependent Care Credit
Wednesday » Understand your taxes if you’re self-employed
Thursday » Watch out for fees when paying taxes by credit card
Today » Reduce your taxes by saving for retirement
Saturday » Use the Taxpayer Advocate when tackling the IRS
Sunday » Don’t ignore your taxes; file an extension to get more time
If you earn a modest living and still funnel money into a retirement account, you could be eligible for a nice tax credit.
Known as the saver’s credit, those in low- and middle-income brackets who are setting aside money for retirement can claim up to $1,000 for individuals and $2,000 for married couples. It’s a credit, so it reduces income taxes dollar-for-dollar, and workers can file for it and still get a tax deduction for contributing to a retirement account.
To qualify for the saver’s credit, an individual must be pay into a traditional or Roth IRA, 401(k), or a governmental 457 plan or 403(b) annuity plan. The taxpayer can’t be a full-time student or a dependent on someone else’s tax filing.
The amount of the credit is based on filing status and income level. For instance, if you’re single and earn less than $28,750 a year, or if you’re a married couple earning up to $57,500, you could claim the credit. But there’s no promise that you’ll get the full amount. According to the Internal Revenue Service, the credit "is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers."
If you’re income eligible, you have until April 15 to set up an IRA or add money to your retirement account to get the credit for 2012.
Questions? IRS.gov, of course.
Coming up tomorrow: Use the Taxpayer Advocate when tackling the IRS.
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