Life after retirement is a sweet dream for some and nightmare for many. It merely depends on the savings you have made when you were in a job. It is always advisable to have retirement savings to lead independent life when we grew older. To make this sweet dream the sweetest we have an ideal suggestion of Tax refund on your Retirement. Yes!!! We are going to discuss about the savings on tax refund on your retirement.
Depositing the tax refund in an individual retirement account could make the individual to be eligible to claim tax deduction on tax return. If the individual has contributed towards retirement plan, then he will be eligible to claim the Saver’s Credit. This credit will help to save for retirement and reduce the tax.
- Saver’s credit was formally known as Retirement Savings Contribution Credit. Hence, the individual who has been contributing towards the retirement plan will be able to deduct contributions to traditional IRA.
- The tax credit differs for married and single person. The Saver’s credit is worth up to $4000 for married and files a joint return. Whereas, the credit worth is $2000 for singles.
- File Form 8880, to claim the tax credit
- An individual is eligible to claim the tax credit if he has contributed to 401(k) plan by end of the year.
- Other rules for being eligible to claim tax credit are as follows:
- The person must have completed 18 years of age
- The person can’t have been a full time student in 2015
- The person cannot be claimed to be a dependent by others on their tax return
Table Of Contents
What is Tax refund for retirement?
Tax refund is the return paid by Government of excess taxes paid by an individual. If the individual has paid more tax than they actually owe, then he or she will receive a tax refund after filing the taxes for the year.
Why Tax saving funds is advisable?
|Scheme||Lock in period||Historical Returns||Returnable Tax?|
|Tax saving fund||3years||14-16%||No tax|
|Life Insurance||5years||0-6%||No tax|
|Fixed Deposit||5years||9.50%||Interest is taxable|
How to save your tax refund for retirement?
It is stated in J.K.Lasser’s “1001 Deductions and Tax breaks 2017”, that “When you file your return and you are entitled to a refund you can direct that the Treasury send your money directly to the custodian or trustee of the IRA”. You can directly deposit your tax refund into two or different accounts to save your tax refund.
Know Your Contribution limits:
The contribution limit may vary from person to person depending on their age. Hence, make sure which slot you fall into.
Claiming process of Tax refund:
You can file a tax return claiming a tax deduction for a traditional IRA contribution before making the deposit. File the 8880 Form by entering all the retirement savings and transfer it to line 51 of your 1040 or line 34 if 1040A.