With all the concerns about Social Security, it is certainly wise to plan for the future and put money into a retirement account. However, regardless of the economic situation, if you are a low or middle-income earner, it is also a very difficult thing. Therefore, the IRS has put together a tax credit that can reduce your tax bill by up to half of the contributed amount. Depending on your income and the amount you have contributed, you may be eligible for a credit of up to $1000, or $2000 if filing jointly.
To qualify, you must have contributed to a Roth or traditional IRA, a 401K or other work-sponsored plan (403b, SIMPLE, SEP, or governmental 457 plan) that you made contributions to during the tax year. (If you still want to take advantage of this, the deadline for IRA contributions is April 15. Just make sure to make your contribution before you do your taxes.) In 2008, IRA limits were $5000 per person (A total of $10,000 for a married couple), or up to the total amount of your income, if you make less. You must also be at least 18 years old by the end of the tax year, and you cannot be claimed as a dependent on anyone else's taxes.
The income limit for this credit is $26,500 for single earners, and $53,000 for married couples.
Make sure, when reporting your taxes, to bring in any contribution statements to your IRA. Your W-2 should contain your work plan contributions, although it is always worthwhile to double check it for accuracy.
Can't take advantage of this tax break?
Check out our list of 40 Tax Breaks that you could use to get your largest tax refund ever in 2009.
Have a question about this tax break?
Leave a comment below and we'll get you an answer that could save you money on your tax return this year.
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