Things You'll Need:
- A few dollars out of your budget now to save for retirement
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Step 1
The first step to qualifying for the retirement savings tax credit is to assess your income. If you are single, then your income cannot be more than $26,000; if you file as Head of Household, then your income cannot exceed $39,000 and joint filers must have income below $52,000. The percentage of credit that you get increases as your income decreases. Filers are entitled to credits of 10 percent, 20 percent or 50 percent, depending upon their level of income. The lower the income, the bigger the percentage.
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Step 2
If your income falls within these parameters, then as long as you're not a full-time student, under age 18 or claimed as someone else's dependent, and of course, you contributed to an IRA or employer-sponsored retirement plan, then you are eligible for the retirement saver's credit.
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Step 3
If you contribute $2,000 to any kind of retirement plan or account, then you can get up to half of it reimbursed with the tax credit if your income is low enough. If you contribute this amount to a Roth IRA, then you can effectively get a dollar-for-dollar reimbursement for up to half of your contribution, and then receive tax-free distributions from the account at retirement!
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Step 4
The government recognizes that people, especially low-income taxpayers aren't saving enough for retirement, and therefore has created this credit that essentially pays for some of your retirement contributions. ANYONE that qualifies for this credit should use it; there's no way that you can lose!
