Many individuals may think that they don’t have the funds to spare to set aside money in a retirement plan.  But what if the government gave you a check for $1,000 to do just that?  Might that change things?  The Retirement Savings Contributions Credit, also known as the “Saver’s Credit”, was created to encourage low to moderate income individuals and families to save for retirement.

A little known section of the tax code allows for a tax CREDIT of up to $1,000 for contributions to retirement plans made by low to moderate income individuals.  Because this is a credit, not a deduction, it means that your federal tax bill could be reduced by the full amount of the credit.   Add to this the ability to also take any applicable deductions for the contribution and you have a combination that can’t be beat.

By making just a $2,000 contribution to a self-directed IRA, you could stand to receive up to half of your contribution back from the IRS as a tax credit if you qualify.  The best part about this is that is works for almost any type of retirement plan, including the Roth. As this credit is aimed at low to moderate income individuals, your Adjusted Gross Income (AGI) must be within the limits to qualify. As always, it is best to check with your tax advisor to see if you may qualify for this credit.

Filed under: IRA Contributions, IRA Education, Managing Your IRA, Roth IRA, Saving for Retirement, self directed IRA, Taxes and April 15th, Traditional IRA, Uncategorized on March 16th, 2009