You Can Seriously Get Actual Free Money

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Here’s a tip for anyone who’s not currently retired: Contribute to your retirement before you file your taxes, and the federal government (F.G.) will probably GIVE YOU FREE MONEY. (If you’ve already filed your taxes this year, cut this article out and stick it on your fridge.)

The F.G. is awesome in many ways—one of which is offering up to $200 in tax credits (AKA FREE MONEY), just for contributing to a retirement account. I’m talking about Form 1040, Line 50: “Retirement savings contributions credit” and Form 8880.

Go to and follow along!

You’re eligible for a credit if (1) you owe taxes; (2) your Adjusted Gross Income doesn’t exceed a limit ($29,500 for single, $59,000 for jointly, $44,250 for HOH.) I’d wager you qualify, collegiate age reader- ship.

Note: You cannot take a credit beyond your tax liability, i.e. If you only owe $199 in taxes, you can only take a credit of up to $199. (See: Form 8880, Line 11.)

Suppose you’re single person who barely qualifies for the credit, and your AGI was exactly $29,500. You owe $3,975 in taxes this year, but paid in $4,000, so you’ll receive $25 back without the credit. With the maximum credit, you’ll get $225 back.

But what if I didn’t contribute anything in 2013? No problemo. More F.G. awesome- ness—you can make your “2013 retirement contribution” anytime before you file your taxes. (The deadline is April 15, 2014.)

So you check your finances and figure you can contribute $1,000 to a retirement account. Awesome—you get to take the credit for an extra $100 back. If you can scrounge up $2,000, then you can take the maximum credit and receive an extra $200 back.

But won’t that $2,000 be untouchable until I retire? NOPE! The F.G. has got your back, via the Roth IRA! The Roth IRA is a retirement account wherein you can withdraw your contributions at any time without penalty. (Because you pay your taxes on your income/ contributions now, you don’t pay taxes when you withdraw them later.)

Note: You cannot withdraw any earnings from the Roth without penalty—ONLY your contributions.

Plus, Roth IRAs are super easy to set up online or in person at your credit union, and can be used to invest in anything! I have mine in low cost, low risk index funds through Vanguard, but you could buy all Google stock, if you wanted.

So you can put $2,000 in a Roth IRA today, file your taxes and take your $200 credit. Then, next month, you can withdraw your $2,000 without penalty. As John Connor once said, “Easy money.”

Moreover, the incentive is stronger for those who earn less *cough* college students *cough.* If you had an AGI of $17,750 or less, you need to contribute ONLY $400 into your Roth IRA to get the maximum credit of $200.

If you take advantage of this great advice and garner yourself an extra $200 back, you might consider adding it back into your Roth, or buying me a drink.

Written by Elvis Enwright

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