It is possible to save for retirement and receive tax credits for it! It is well worth looking into these savings options to receive tax breaks while saving for the future. These retirement savings accounts are called Traditional IRA, and Roth IRA. Contributing to IRA accounts allows you to grow your money tax-free!
To qualify for benefits in both IRA and Roth IRA, you must have work earnings that are higher than the amounts contributed. Someone who is not currently working or has earned less than the contributed amount will not qualify for the credit.
The maximum amounts that can be contributed for a tax credit on both IRA accounts are $5,500 if you are under age 50, and $6,000 if you are over 50 years old. That is the amount that you can contribute from your yearly income, and that qualifies for credits on an IRA and a Roth IRA
On a traditional IRA, the amount added is not only tax-free, but it also lowers your Tax Liability for the year. In a traditional IRA, money remains tax-free as long as it is not withdrawn before retirement age. If you do remove the money before retirement age, you will be liable for taxes. This is because the money went into the account untaxed; penalties will depend on the reasons for removing the money.
Contributing to a Roth IRA allows you to grow your money tax-free! It is different from a 401k because it is more flexible in case you need to withdraw any money before retirement age. This is because funds contributed into a Roth IRA account will have already been taxed, it is the earnings from them that will be tax-free. The earnings from it must remain in the account until retirement age, or they will be subject to tax and penalties. For more details, see Publication 591-A (2018) https://www.irs.gov/publications/p590a.
Both IRAS can be opened up to April 15th of 2019, for a tax break in 2018 taxes. For more information on calculating your tax benefit contact your tax preparer, investor, or check out the details under https://www.irs.gov/retirement-plans/roth-iras.
The StateChoice Team