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It is a well-known fact that Americans are miserable failures when it comes to saving for retirement. Well, the government is offering tax credits to change this for some of us.

Tax Credits for Retirement Savings

Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.

The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of 1,000 for singles and 2,000 if youre filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.

You can claim the retirement savings tax credit:

1. Individual taxpayers with incomes of 25,000 or less.

2. Individual taxpayers that are head of households and make 37,500 or less.

3. Married couples filing jointly who make 50,000 or less cumulatively.

There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you cant be a full time student. Finally, another dependent cant claim you as a dependent on their tax returns.

Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another 1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.

The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.

Most parents want to pay for their childrens college education, or at the very least help pay for college. While it would be great for your children to be able to start like after college without student loans to pay off, the cost to parents may be too high.

The average annual cost of a 4-year public college is 12,127 (source: The College Boards Annual Survey of Colleges, 2005-2006), with 4-year private schools averaging 29,026 a year. College costs have been outpacing inflation by rising over 5% per year.

On the other hand, saving for retirement has become even more important as companies have started freezing or eliminating pension plans, and the future of Social Security continues to be uncertain.

Paying for both college and retirement will be challenging for most parents. Here are some suggestions to help you to achieve both goals:

Have a plan. You should determine how much you will need for retirement and how much you anticipate your children will need for college.

Start saving as soon as possible. Time is your greatest ally, whatever your savings goal. Figure out how much you are able to save each month, and setup an automatic plan as soon as possible.

Prioritize if you cant afford to save for both goals, retirement should take priority over saving for college. Your children can always borrow for college or earn scholarships; you can not borrow money for retirement.

Save for both. Ideally, youd like to be able to save for both goals at the same time. If youre able to, allocate money to both goals. You may wish to visit with a financial planner to determine how much should be allocated to each goal.

Research there are several different types of college savings accounts available. Find out which type of account will benefit you the most before you invest.

Use retirement accounts to save for retirement and college. Retirement accounts can be tapped into to help pay college bills (IRA withdrawals can be taken penalty free for college expenses; Roth IRA contributions can be taken penalty and tax-free). However, you should only do this if it will not sacrifice your retirement savings.

The bottom line to getting the most out of your savings – prioritize your savings goals, have a plan in place, and start early.

Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis.

Roth IRA

First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59. So how can you use a Roth IRA to pass money to your child?

Opening A Roth IRA For Your Child

One of the biggest keys to retirement planning is time. The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didnt do for yourself?

The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute 4,000 in 2005. That 4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly 200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child.

As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your childs attitude will undoubtedly change when you are talking about their money.

Work and Maturity Issues

Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor.

A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies.

Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg.

Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis.

Roth IRA

First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59. So how can you use a Roth IRA to pass money to your child?

Opening A Roth IRA For Your Child

One of the biggest keys to retirement planning is time. The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didnt do for yourself?

The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute 4,000 in 2005. That 4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly 200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child.

As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your childs attitude will undoubtedly change when you are talking about their money.

Work and Maturity Issues

Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor.

A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies.

Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg.