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Teach your children well about retirement saving

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in Small Business Tax

Many young adults fresh out of college find it daunting to save for retirement, especially during this economic downturn.

Strategy: Extol the virtues of the “retirement saver’s” credit. This little-noticed tax break can provide a big boost to children who earn modest wages.

The amount of the available credit depends on the individual’s AGI, his or her tax filing status and the amount contributed toward retirement.

Here’s the whole story: The retirement saver’s credit is applied to the first $2,000 of voluntary contributions made to a tax-qualified retirement plan such as a 401(k) or an IRA. Although greater contributions are permitted, the maximum amount taken into account is limited to $2,000.

For low-income taxpayers, the credit is equal to 50% of the qualified contribution. This percentage is reduced to 20% for individuals in the next income bracket. Finally, the percentage drops to 10% for the next income gr...(register to read more)

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