Articles, tutorials and other stuff related to my many doings at Stardock.
Use Retirement Savings Credit to your advantage
Published on February 11, 2007 By GreenReaper In Consumer Issues
Did you know that the government will pay you for saving for your retirement? To the tune of 50% of what you paid, in some cases?

It's true. It's a relatively new credit that most people still don't know much about. Last year, I personally got $1000 back from it. If your situation is right, you can too. The form is simple (PDF), though most e-filing systems can do it for you.

Even better - if you missed out on contributing to a 401(k) or IRA last year, it's not too late. You can still open an IRA right up to April 17, say "it's for last year", and claim this credit (unfortunately, you won't get the returns you would have made if you had been invested then, but you can't have everything . I use Vanguard, but you might also consider T. Rowe Price.

If you get a traditional IRA, you can also deduct however much you put in from your AGI, which may improve the percentage you get back out in a credit (people with a lower AGI get more credit for saving). Be aware that non-deductible Roth IRAs have some advantages, the biggest being being that they're federal-tax-free when taken out, so if you find the amount you can deduct doesn't matter you should consider going that route. See my previous post on retirement investing for more info.

To sum up: If you have a few hundred - or better, a few thousand - or can get your hands on it, it might be worth you putting it away for later, and getting up to half of it paid back by Uncle Sam. After all, you're getting that tax refund anyway - why not use it to save for the future and make that saving bigger at the same time? If nothing else, at least start saving now so you can claim it next year. You owe it to yourself!

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