New Here? Get the Free Newsletter

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning. Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

2010 Income Limits for the Retirement Savings Contribution Credit

While recently updating my series of tax books to include 2010 information, I was surprised to find that the 2010 income limits for the Retirement Savings Contribution Credit have thus far been unpublished almost anywhere on the web.

What’s the Retirement Savings Contribution Credit?

It’s a tax credit available to you if:

  1. You contribute to either an IRA (of any kind) or to a retirement plan at work, and
  2. Your income is below a certain level (see below).

The best part is that this credit is in addition to the normal tax benefits that come with investing in an IRA or 401k.

How is the credit calculated?

It’s calculated as a percentage of the contributions you make to a qualified retirement account (up to $2,000). As your Adjusted Gross Income increases, the percentage of the contribution used to calculate the credit decreases. The income ranges for 2010 are as follows:

Married filing jointly:

  • Up to $33,500: credit = 50% of contribution
  • $33,501-$36,000: credit = 20% of contribution
  • $36,001-$55,500: credit = 10% of contribution
  • Above $55,500: Not eligible for credit

Single:

  • Up to $16,750: credit = 50% of contribution
  • $16,751-$18,000: credit = 20% of contribution
  • $18,001-$27,750: credit = 10% of contribution
  • Above $27,750: Not eligible for credit

Head of household

  • Up to $25,125: credit = 50% of contribution
  • $24,751-$27,000: credit = 20% of contribution
  • $27,001-$41,625: credit = 10% of contribution
  • Above $41,625: Not eligible for credit

Example #1: You’re single, your Adjusted Gross Income for 2010 is $25,000, and you contributed $3,00o to an IRA. Your credit will be $200. (10% of the eligible contribution, which is limited to $2,000.) Remember, this is a credit, not a deduction, meaning it will actually save you $200 on your taxes.

Example #2: You’re married filing jointly, your Adjusted Gross Income is $35,000, and you and your spouse each contributed $2,500 to a Roth IRA. The total amount of your credit will be $800. (20% of each of the eligible $2,000 contributions.)

Do not miss out!

If your income level makes you eligible to take advantage of this credit, do everything you can to make sure you contribute at least $2,000 to a retirement account of some sort. There’s no sense in passing up an immediate, guaranteed 10%, 20%, or 50% return.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

Comments

  1. Oh yea, I’ve seen this before. The problem for me is that you can’t claim it as a full-time student =(
    In my case I guess the best hope is to take advantage in the transition haha…

    It’s pretty abusive for the Roth… I think it more or less wipes out the taxes you’d have paid on the Roth; so it has the best benefits of both =)

Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a registered investment advisor or representative thereof, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2021 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator (beta): Open Social Security