"Retirement savings contributions" tax credit

[kork13]

This is mostly me thinking outloud, but some here might benefit from it too, so I'll share...

So this morning I was looking over a 1040 trying to work up a guesstimate of what I'll owe for taxes this year. In the process, I noticed this thing called the "Retirement savings contributions credit". Curious, I pulled up the form for calculating the credit, and realized that I could potentially swing it so that I could take advantage of it.

Basic summary, it's supposed to reimburse low income earners up to $2000 (graduated based on taxable income) for contributing to retirement plans (of any sort... 401k, Roth, 403b, etc).

Currently, I'm putting $265/mo (10% base pay) toward the tax-deferred TSP. By my calculations, I am currently set to be on track for a taxable income of ~$29k next year. To qualify for the credit, you have to be lower than $26500. So if I double my TSP contributions, I'll be able to get my taxable income low enough to qualify for 10% of the tax credit ($200). It's like getting paid to save more for retirement! I've not totally decided, but I think it might be worth me looking at it, especially since I'm about to finish paying off my car loan, which would be $500/mo back into my budget.

Thoughts, anyone, on this tax credit? I just found out about it today, and thought it was kinda cool, so I figured I would share.

[jIM_Ohio]

You have it right- the credit may not pay for itself, but in some cases it will come close.

I would NOT plan for W-2's to withhold more based on the credit.

[sweeps]

If you can get the credit, by all means, go for it. It's a slam dunk. The problem is it's not practical for most people.

The maximum income limit is pretty low, you cannot be a student, you must be at least 18, and you cannot be claimed on someone else's taxes. Most people who qualify after that can't afford to save much after their regular expenses.

[nmboone]

Yeah, unfortunately I never qualify for it because I'm a student. Really not fair because I do have a retirement savings account!

[kork13]

Yeah, unfortunately I never qualify for it because I'm a student. Really not fair because I do have a retirement savings account!

Yea, I'm just disqualified for it this year because I was still a student through May, and it specifically defines 'student' as being in school for any part of 5 calendar months... so i'm screwed for 2008, but we'll see what happens for 2009. However, sweeps is very right... I'm kinda stretching to try and get it, even as it is, and this will definitely be the last year my pay will be low enough to still qualify. If I'm able to make it work, it's more just to satisfy myself of the challenge, since it does require me to save so much more than I was planning. Oh well, we'll see.