Retirement Planning


1)      Set a retirement goal. Know how much you need to save.

2)      Time is money. The sooner you begin saving, the better.

Example A: Susan saves $2,000 a year starting at age 35.
She saves for 10 years ($20,000). 
At 8% interest a year, she will have $151,000 at age 65.

Example B: Rick saves $2,000 a year starting at age 45.
He saves for 20 years ($40,000). 
At 8% interest a year, he will have $99,000 at age 65.

3)      Target at least of your profit for retirement savings. If you are over age 30, 20% is better!

4)      Make regular, consistent investments into a retirement fund, regardless of general 
         economic conditions. 

5)      Don’t be overly conservative in where you invest your money.

6)      Don’t put all your eggs in one basket. Diversify your investments.

7)      Develop the savings habit. Don’t buy anything unless you can pay cash for it.
         The only exceptions:  house, home improvements, education.

How much will I have?

After years of saving and hoping, here’s an estimate of what your nest egg will be worth at age 65. This estimate is based on an average annual rate of return of 8%. In addition, the investments are assumed to be in a tax-deferred retirement account.

 Your Age


 Retirement Balance at Age 65



















$  45,762







$  14,487

$  43,461



How Much Should I Save For Worksheet

IRA Tax Credit for Retirement Contributions

Low-income taxpayers can claim a tax credit for contributions to their IRAs. It applies to all IRAs (regular, Roth, SEP, and SIMPLE). It also applies to contributions to an employer-sponsored retirement plan (401k and 403b plans).

Providers quality for this credit if their adjusted gross income (2008) is $52,000 or less (married filing jointly), $39.000 or less (head of household), or $26,000 or less (single or married filing separately). The tax credit is calculated based on contributions to any qualified IRA up to $2,000 per person per year. This includes contributions to a regular IRA, Roth IRA, SIMPLE IRA, SEP, and 401(k) or 403(b) plans made by either the provider or her spouse. This tax credit is in addition to the regular tax deduction for such contributions. The amount of the tax credit is 10%, 20%, or 50% of the contribution based on the family's adjusted gross income.

The credit is available to individuals over age 18 who are not full-time students or claimed as a dependent on another taxpayer's return.

Providers can claim this tax credit (up to a maximum of $1,000 on a $2,000 contribution). This is an unbeatable tax break!  Providers who qualify should take advantage of the significant tax benefit of this credit.

Providers who made contributions to an IRA in the past three years and were income eligible for this tax credit, but did not take advantage of the credit, can file an amended tax return to claim the credit. The credit is claimed on IRS Form 8880 Credit for Qualified Retirement Savings Contributions and carried forward to IRS Form 1040, line 53 (2007 version).

Many family child care providers are not making regular contributions to their retirement fund. This tax credit is a substantial incentive to save more money. For example, an eligible provider (married, filing jointly) who contributed $1,000 to a SIMPLE IRA and whose family's adjusted gross income was $29,000 would get a $500 tax credit; the tax-deductible contribution would also save about $150 in income taxes (15% tax bracket) for a total of $650 tax savings. It would actually cost this provider about $350 to get a $1,000 added to her retirement fund! If this provider contributed to a Roth IRA she would get the $500 tax credit, but not the $150 tax savings because contributions to a Roth IRA are not tax deductible.

The tax credit for contributing to an IRA (traditional, ROTH, SEP and SIMPLE) and employer-sponsored retirement plan (401k and 403b) is as follows:

Joint Filers
Adjusted Gross
Income AGI

Head of
Household Filers

Other Filers


















Over $59,000

Over $44,250

Over $29,500




Although providers can hire their own children to do work for their business and set up an IRA for their child, the child cannot use this new tax credit because the child is their dependent.

All low-income providers should give serious thought to making retirement contributions to take advantage of this valuable tax credit.

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