so many tasty credits out there!

[KTP]

I was watching Clark Howard the other day and heard about the 50% match the government gives in the form of a tax credit if you are below a certain income and contribute to a Roth IRA!

How would this credit work if you were living soley off of stock dividends and municipal bond payments? Would you need to work somewhere to obtain enough earned income so you could make the Roth contribution?

I had not really thought of including all of these "benefits" in my calculations of what we might need to amass to retire early...

[kork13]

To directly answer your question, it depends. I would look up IRS Form 8880 and look at the restrictions for line 4 in the instructions (included with the form). They're a bit messy, so only you would be able to figure out if you're eligible.

Yes the credit is there, but it's got a pretty narrow margin of applicability. To get the 50% credit, your AGI must be below $33k (married) or $16.5k (single). From there, it drops off quickly, totally phasing out at $55.5k (married) and $27,750 (single). I'm only just barely able to claim part of it, for a $200 credit.

I wouldn't call it a match, it's really just another tax credit, and a rather limited one at that. It's calculated as a fraction (based on your AGI) of either your total contributions to a Roth/Traditional IRA or employer retirement plan, -OR- $2000, whichever is less (per person, so you and your spouse). So let's say you have an AGI of $35k and made total IRA/401k contributions of $5k each (or heck, $21.5k for all it matters), you would get a total of 20% of $4k as a tax credit.

[KTP]

In a hypothetical situation where we both worked for an employer for a very small amount each year (say one month) and had a combined income of $10,000 from that but had another $10,000 from stock dividends and $40,000 from municipal bond interest, would we qualify for this type of tax credit? 60K of income but only 10K from "working".

2009 will have been the first year I had municipal bond interest, so I am still a bit unclear how it affects the bottom line for tax credits and income caps for taking them.

[kork13]

I'm no expert, and am just going off of what I've figured out by doing my own taxes. But I think in that scenario, you wouldn't qualify. All of the stock/bond distributions are considered income just like the job's salary is, and all figure into the AGI. Since the credit's applicability is based on AGI, if your's is over that line, then you couldn't take the credit. I'm sure there are particulars I'm missing though, so I'd probably recommend either wading through it yourself, get better info from someone else here, or just ask a professional.

[swanson719]

I don't know about it, but I printed off the IRS Form 8880 and am getting a copy of DW and I's contributions to our Roths and letting the tax prep guy handle it. Never hurts to try right?