 Hello and welcome to this session in which we will discuss the retirement savings contribution credit also known as the savers credit. What is the purpose of this credit? Because each credit will have a particular purpose. The purpose is to encourage you to contribute, to contribute money to your retirement through what? Through plans such as a 401k. In this credit specifically designed to encourage low to moderate income taxpayer to say for retirement. Now on a side note, here's what I'm going to advise you. I strongly suggest you start contributing to your 401k, to your retirement plan with your first full-time job or as soon as you are eligible to contribute. The earlier you start, the better off you are. Now once you put that money away, you're going to save on your taxes now and this money is going to be invested for you for the future. So you get the benefit now and you will get a benefit in the future. So don't wait, start early. Unfortunately, I did not start early. I'm trying to catch up, but learn from my mistake and start as early as possible. Whether you're going to qualify for this credit or not, invest. The credit can be claimed by individual taxpayer who make a contribution to a qualifying retirement account such as a 401k or an IRA. To be eligible, you must be 18, at least 18 and you have to have certain income requirement because it's for low-income individual, not everyone would qualify. Also the credit is available to full-time students who are not claimed. You cannot be claimed as a dependent on someone else's return. Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. Just like everything in taxation, there are specific limits and rules. The amount of the credit is based on how much you contributed, as well as your income level and how much money you are making. The credit is worth up to 50% of your contribution. Simply put, you put a dollar, you may get up to 50%. However, there is a max credit. The maximum credit you can get as a single is $2,000. Married filing jointly, you can get up to $8,000. Simply put, an individual that can contribute at $4,000 to their retirement plan, if they qualify for the 50% up to the 50%, they can get $2,000 in a credit. Married filing jointly, if they can contribute $8,000 and they qualify for the 50%, they can get up to $4,000 in tax credit, which is really good. But let's take a look at the limitation. So to qualify for the 50%, to qualify for the 50%, this generous rate, as a joint return, you cannot be making, so married filing jointly, you cannot be making more than $41,000. As a single, you cannot make more than $20,500, head of a household, you cannot make more than $30,750. Now, married filing jointly, once you exceed $68,000, you no longer qualify. Single, once you exceed $34,000, you no longer qualify, and we have the percentages in between. Now, obviously, we're going to look at examples to illustrate these concepts. Let's assume a George, a single filer taxpayer. So we're looking at this column here. George modified adjusted gross income, or simply put, adjusted gross income is $25,000. So George falls in this category, $22,000 to $34,000. George makes $1,200 contribution to an IRA. His credit will be 10%. 10% of $1,200 is $120. George get a tax credit for $120. Now, if a George AGI was $19,000 or less, just $19,000 or less, then he will be in this bracket and they will get the 50%. He will get $600 in a tax credit. Simply put, he contributed $1,200. He get immediately $600 back and this $1,200 will grow tax free. Let's assume Marge and Homer married filing jointly. We're working under the joint return. Modified adjusted gross income of $41,500. So default in this category, therefore they qualify under the 20%. Homer makes $3,000 contribution. Well, 3,000 times 20% is $600. That's their tax credit. If their modified adjusted gross income was less than 41, so if they fall into this category, they would have got 1,500. That's a lot of money. If you contribute 3,000, I'm going to give you half of it back now and this 3,000 will grow, tax deferred until your retirement. So it's a win-win as long as you can afford to make that contribution of 3,000. Someone who's making $41,500, they might find difficulty making this contribution. But the best for Marge and Homer, if they're making less than 41, to maximize it, contribute 8,000, you'll get 4,000 back immediately, which is great. But again, 4,000 of a person that's making 41,000, that's a large proportion of their income. Nevertheless, I'm going to end this recording by reminding you to contribute to your 401K as early as possible, whether you qualify or not and forget it. Don't touch it, it will grow. You will find it down the road. You may not be thinking about these things now, but as you get older, it's very important to have a NEST Act, to have savings for yourself. Now again, what should you do now? Go to Farhat Lectures and look at additional resources, whether you are an accounting students, enrolled agents, CPA, they have multiple choice, through false additional resources, that's going to help you do better. Good luck, study hard and invest in yourself.