Here’s another great government giveaway. It’s on line 51 of the IRS form 1040 and is called the Retirement savings contribution credit. This one’s especially juicy! Granted, the income limits are low ($26,500 if single, $39,750 head of household, $53,000 if married) but if you fall in that range it’s pretty darn good!
Essentially you get up to one half of your retirement contributions (it’s graduated depending on income) to IRA’s (yes, Roth’s too!) and/or 401k , 403b plans. The maximum you’ll get is $1,000. per person or $2,000. per married couple.
Do the calculations on form 8880 (they’re pretty simple) to see if you qualify and for how much. All the forms and instructions are found on the IRS website- www.irs.gov and you can do the calculations on the form in pdf format or just view the material in html.
Here’s the best part. If you are already getting a refund for 2008 and have not maxed out your contribution limits, you have until April 15th 2009 to contribute for 2008. This means that you can use your refund to retroactively fund your 2008 contribution! Just do the calculations and see how much MORE your refund will be! Now remember you must actually MAKE the contibution you state you will make to qualify for the credit by April 15th, 2009.
Here’s an example- Joe and Mary Jones have a combined income of $32,000 shown on their W2 forms from there employers. They contributed $2,000. each in their employers respective 401K plans for a total of $4000. They will qualify for the maximum credit of $2,000. between them reducing their tax liability by that amount ($2,000.). This will give them (possibly, depending on witholding) an additional $2,000. refund!
Another example- Bill Boxer is single and earned $16,000. and had no retirement plan at work. He has had his taxes done February 5th 2009 and found that he is getting a $2,000. refund. He can re-do his taxes and take that $2,000. and contribute to either a traditional IRA (further reducing his income and tax liability) or a Roth IRA and take the credit on 1040, line 51 and sustantially increase his refund. Again, this depends on witholding and other fators and Bill must remember to actually MAKE the contribution that he claimed for the credit by April 15th, 2009.
Sweet deal, huh?