Let Uncle Sam Help Finance Your Retirement Fund
Now is the time of year to start planning for your 2011 income tax return. (Yes, I know that most of you have just finished filing your 2010 tax return.)
If you expect your 2011 income to be less than $27,750.00 (or $41,625 for head of household; $55,500 for married filing jointly)*, then right now is the time to consider contributing to your 401(k), 403(b), IRA, or most other employer qualified retirement plans.
Depending on your income, you can take a Federal income tax credit of up to $1000.00 ($2000.00 on a joint return) for contributing to your own retirement plan. The lower your income, the higher the credit. This means that your taxes will be reduced by the amount of the credit, therefore giving you a bigger 2011 tax refund, or a smaller balance due.
What other investment can you make that will immediately pay you a return of 10% to 50%? It gets even better if you can contribute to a plan where your employer matches all or part of your contribution. You could literally more than double your money.
For more details, and to see if you are eligible for the credit, read the instructions to IRS Form 8880.
Note that if your income is too high, then you will not be eligible for the credit. You will also only be able to use the credit against any federal income tax. If your tax return shows a zero tax, then the credit would be useless on your tax return.
And yes, the credit is available for 2010 tax returns. If your income is less than the amounts above and you contributed to your 401(k) or IRA, then don't forget to claim your Retirement Savings Credit.
Building a retirement fund with help from tax credits and your employer ... now that's The Fat Dollar way.
Today's Fat Dollar Money Saving Tip was written by PatriciaTokar, CPA
This article is not intended to be specific tax advice. It is intended as a general guideline only. Any specific advice should be sought from your tax professional.
CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Department guidelines, any federal tax information contained in this article, or any attachment, does not constitute a formal tax opinion. Accordingly, any federal tax advice contained in this communication, or any attachment, is not intended or written to be used, and cannot be used, by you or any other recipient for the purpose of avoiding penalties
*These numbers will be adjusted slightly for inflation for the 2011 tax return.
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