At last, there’s something other than junk mail in your mailbox! It’s your retirement plan! Congratulations on saving for your future! But are you getting the most bang for your buck? These tips will help. Use these tips to help you maximize your tax benefits.
• When you change employers, either leave the money in your old employer’s plan or roll it over to another tax-deferred retirement plan such as an IRA. If you withdraw the money, it will be considered income so you’ll owe income tax, plus a possible 10% penalty if you’re under age 59½. That additional taxable income could also put you in a higher tax bracket. You have worked hard to save this money; don’t turn it over to the government now!
• If you’re 50 years of age or older, make catch-up contributions to put more money into your plan or IRA and save even more taxes. Now is the time to take advantage of the tax laws so that you can enjoy your retirement with more money saved.
• Claim the Saver’s Credit on your income taxes. This credit is available for tax years 2002 to 2006 for IRA and retirement plan contributions if your income is not more than $50,000 for married persons filing jointly, $37,500 for heads of household, and $25,000 for single filers. You’ll get a credit between 10 and 50 percent of the amount you contributed. What a nice bonus for saving money!
• If you pay little or no income tax at all, contribute to a Roth IRA instead of a regular IRA. You can’t save any taxes now by deducting a regular IRA contribution, but the Roth IRA will save you taxes when you take the money out. You subtract regular IRA contributions from your income, and pay less income tax now. The taxes are deferred until you take the money out. But if you owe no tax anyway, there’s a better choice. Put your money in a Roth IRA. There’s no tax benefit now, but your withdrawals will be tax-free income in retirement!
Knowing how to take advantage of the tax laws can help you save money for retirement. By following these tips, you may enjoy a happier retirement, or even an earlier one. You can learn more about the tax benefits of retirement plans at University of Illinois Extension’s web site, Plan Well,Retire Well: Your how-to guide. Visit it at www.RetireWell.uiuc.edu.
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Source: Karen Chan, Extension Educator Consumer and Family Economics
Countryside Extension Center
University of Illinois
(708-352-0109)
April 2004
Edited by: Lois Smith (618-692-9434)
