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It can be difficult for young people to save money and plan for their future retirement due to the many other competing financial choices that present themselves. A little known tax break can provide a big boost to low-income earners, such as young adult children. The “Retirement Saver’s Credit” is a $1,000 – $2,000 tax credit available for contributions made to a tax-qualified retirement plan such as a 401(k) or IRA. This income-based tax credit is up to $1,000 for single tax filers and up to $2,000 for those who are married filing joint. A tax credit is more valuable than a tax deduction because a tax credit reduces your Federal income tax liability $1 for $1, whereas a deduction reduces your taxable income $1 for $1 and then the tax is calculated. It cannot reduce your income taxes below zero, nor can it be used by those under age 18, full time students, or a child claimed as your dependent. The tax credit can be fully or partially utilized if your Adjusted Gross Income (AGI) is less than $31,000 for single filers and $62,000 for joint filers. If you are interested in making a gift to your children (to then deposit into an IRA) and/or encouraging them to save, this tax program will partially pay for them to save.
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Don is a Certified Financial Planner® and has been in the wealth advisory business for over 21 years. He is a founding partner of Planning Solutions Group, which was formed in 2001. His practice focuses on high net worth business owners, physicians, and retirees in the areas of wealth management, business continuity planning, fringe benefit design, estate planning, and qualified plan analysis.  Don can be reached at dhannahs@psgplanning.com