More than half of workers risk losing free money for retirement. Do not be like them | Smart Change: Personal Finance

(Christy Bieber)

Saving for retirement requires effort and sacrifice – especially since most people will need hundreds of thousands or even millions of dollars invested to provide sufficient income to supplement social security.

Unfortunately, many workers actually pass up an opportunity to make their efforts to save easier. This is because they are not aware of an important opportunity to make free money for retirement investment.

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Are you missing out on this important pension tax?

The disturbing news that Americans are at risk of missing out on free money for retirement comes from the Transamerica Center for Retirement Studies.

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The center recently conducted a survey and found that only 46% of workers are aware of a tax deduction called Saver’s Credit. This includes 50% of employed workers, 41% of the self-employed and 24% of the unemployed of working age.

Not knowing if the savings credit is a big problem because for those who are eligible, it is one of the most valuable sources of free retirement funds out there. In essence, it provides a tax deduction worth up to 50% of the amount you invest in eligible pension accounts. However, there is a ceiling on the credit. You can claim the credit for up to $ 2,000 in pension account contributions if you are a single tax registrar or up to $ 4,000 if you are a married joint branch. That means honor is worth a maximum of $ 1,000 for single tax registrars or $ 2,000 for married joint registrars who contribute the maximum to their retirement accounts.

The exact credit you are entitled to depends on your income and the income limits change annually. Here’s how much your tax deduction is worth in 2022 based on your income and tax application status.

The size of your tax deduction

based on income and archive status

Married Filing Common

(AGI)

Household head

(AGI)

All other files

(AGI)

50% of your contribution

$ 0 to $ 41,000

$ 0 to $ 30,750

$ 0 to $ 20,500

20% of your contribution

$ 41,001 to $ 44,000

$ 30,751 to $ 33,000

$ 20,501 to $ 22,000

10% of your contribution

$ 44,001 to $ 68,000

$ 33,001 to $ 51,000

$ 22,001 to $ 34,000

0% of your contribution

Over $ 68,000

Over $ 51,000

Over $ 34,000

Remember, a tax deduction is not the same as a deduction – it is far more valuable. Credits reduce your tax bill on a dollar-for-dollar basis instead of just reducing your taxable income.

If you owe $ 3,000 in taxes and get a $ 2,000 credit, a full $ 2,000 will be deducted directly from your tax bill, leaving you with only $ 1,000 in debt. So the IRS gives you essentially as much as $ 2,000 for free if you contribute $ 4,000 to a retirement account as a married couple. Your $ 4,000 contribution will only reduce your return income by half the amount once you have claimed the credit.

This credit also comes on top of any other deductions you get. So if you contribute $ 4,000 to an IRA, you can typically deduct that $ 4,000 from your taxable income. and get a credit of $ 2,000 in addition.

Do not leave money on the table

More than half of Americans unaware of this credit may miss the chance to get valuable help saving up for retirement. If you were one of them, you are now aware of the chance to make free money, and this year you can make plans to contribute enough to your retirement accounts to earn the full amount Uncle Sam offers.

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