50% Return on Investment?

People often quote the old adage "If it seems too good to be true, it probably is," without acknowledging the "probably is" part.  "It probably is" doesn't equal "It absolutely is".  Being able recognize the difference is often what separates the "haves" from the "have nots".

DISCLAIMER:  I AM NOT A TAX ADVISOR.  THIS IS NOT TAX ADVICE.  YOU SHOULD CONSULT WITH A TAX PROFESSIONAL REGARDING THIS BEFORE TAKING ANY ACTION.

For those who are in the niche to take advantage of it, here is the not-to-good-to-be-true opportunity of 50% (initial) return on investment (ROI).  This is from the instructions for IRS Form 8880. (Link includes form and instructions.)

Often called, "the saver's credit", it should be available to (again, consult your tax advisor)  a person whose Adjusted Gross Income is under $19,250 (or $38,500 for married filing jointly) for 2019 taxes. Voluntary contributions up to $2,000 result in a tax credit of .5 (50%) of the contributions, with lower credits for those with AGI up to $32,000 for an individual.  Here are a few of my favorite things regarding this:

• It applies to money put into a Roth IRA, not just traditional IRA.  
• Because of filing deadline moved to July 15, deadline to contributing to or opening an account for 2019 tax year has also moved.
• If a person is on the edge of qualifying for a higher credit or for the credit at all, your tax advisor should be able to tell if a contribution would reduce the AGI resulting in a higher credit.
• Once an account is established, it's much easier to contribute for the current and future years.
• Increased retirement savings!

It definitely is a niche since there are a lot of things that would disqualify someone from getting the credit such as being claimed as a dependent or being a full-time student.  And many of those making $32,000 or less are not going to have the money to save.  But here are some situations that may work.  You can probably think of more.

• Semi-retired person who is working but doesn't "need" the money from work.
• Young part-time student or non student with low expenses because of living with parents.
• Person with assets but lower earned income for 2019 (and/or expected for 2020) tax year because of not working part of the year or reduced hours, intentionally or involuntarily.
• Person with intentionally low expenses and intentional low taxable income.
• Person who gets a Covid 19 stimulus payment but doesn't "need" the money.

Bottom line:  If in the right niche, $2,000 contribution to retirement savings gets a $1,000 tax credit, AND the $2,000 is still in the retirement savings.

If your tax advisor says it's a good idea and you need helping set up an IRA or Roth IRA, I am happy to help.  Since it's still the month of 4/20, I'll make the gratuitous Willie Nelson reference.  "If you've got the money, honey, I've got the time".