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As the tax season approaches, it is important to check if you are taking advantage of all the tax credits and deductions available to you. One such tax credit that often goes unnoticed is the Roth IRA Tax Credit, also known as the Retirement Savings Contributions Credit.
The Roth IRA Tax Credit is a non-refundable tax credit that can be claimed by eligible taxpayers who make contributions to a Roth IRA or a traditional IRA. This tax credit can reduce your federal income tax liability up to a maximum of $1,000, depending on your income level and contribution amount.
To be eligible for the Roth IRA Tax Credit, you must be at least 18 years old, not a full-time student, and your income cannot exceed certain limits. For the tax year 2020, the income limit for the credit is $65,000 for single filers or $104,000 for married couples filing jointly. If your income is above these limits, you may still be eligible for a partial credit.
The amount of the tax credit is based on your filing status, adjusted gross income, and the amount of your contribution. The credit rate is a percentage of the amount you contributed, up to a maximum credit of $1,000.
For example, if you are a single filer with an adjusted gross income of $30,000 and you contributed $2,000 to a Roth IRA, you will be eligible for the maximum credit of $1,000. However, if your income is $50,000 and you contributed $2,000, your credit will be reduced to $400.
It is important to note that if you are eligible for the Roth IRA Tax Credit, you must claim it on your tax return using Form 8880. This form will help you determine your eligibility and calculate the credit amount.
If you have not made any contributions to a Roth IRA or a traditional IRA, it is not too late to do so before the tax deadline. Contributions made before the tax deadline can still be claimed for the tax year 2020.
In conclusion, the Roth IRA Tax Credit is a valuable tax credit that can help you save money on your federal income taxes. As you prepare your tax return, make sure to check if you are eligible for this credit and claim it if you are. By doing so, you can maximize your tax savings and improve your retirement savings at the same time.
Well I'm a full-time student, so I needed a solid answer 🙁
Most IRA need to put a minimum amount into open and then you have to pay a hefty penalty if you need to withdraw any money. With the bad economy, people are not saving much money right now.
Good to know!
so, not really for higher military pensions. thanks for sharing, will pass onto other family members.
So if your AGI as a single is 19k from earned income, taxes deducted weekly and you contribute $2,000 to a Roth Ira you would get the credit? The article example is confusing by saying that the work performed was NOT taxed. Does that mean it was a 1099 job because taxes were not with held? Must the earned income NOT have taxes with held to benefit from this?
wow this would be awesome for military folks to know. wish i would have known when i started out in 1987.
Hi josh what form do I need to fill out for the credit? Or it’s automatically done ?
Don’t you need earned income to contribute to a Roth? Or any IRA for that matter?
Really got interested as I haven't filed yet but little over a minute in and it is not "ganderable". Saved it for my retirement days.
I think head of household is single with kids/dependents.
Thanks Josh good to know
Great stuff!
Another weapon to get that sweet tax credits
I have been pushing form 8880 for years.
And if you’re close to the limits/cut off, you can wiggle your income down with some pre-tax retirement/HSA contributions. (Disclaimer: don’t let the tax-tail wag the dog, or however that saying goes 🙂