Mid-Year Tax Planning For College Grads
BOSTON (CBS) – There is tax planning for the recent graduate or their parents who want to give them advice.
I am assuming here that the graduate did get a job or is about to start a job or could be under-employed waiting for the right job.
Once you get that new job, think about your retirement. I know it’s the last thing on your mind, but I promise you will be glad you did 40 years from now. Enroll in your employer’s retirement plan.
There is a tax credit, the Retirement Savings Contribution Credit that is available for low-income wage earners. If you decide to contribute to the 401(k) plan at work or open an IRA for $2,000, you could be eligible for up to $1,000 credit. Here the government is giving you an incentive to start saving for retirement.
This credit is in addition to whatever other tax benefits may result from the retirement contributions. For example, your contribution to a traditional IRA may be deductible. Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan.
Income limits apply; single individuals with incomes up to $30,000 and for married couples with incomes up to $60,000. You must also be at least age 18, not a full-time student. According to the IRS if you were in school for 5 months of the year you are considered a full-time student. So if you graduated from college in January you are golden. If you graduated in May you will not be eligible for the credit.
Next, your school loans. Payments won’t start until 6 months after graduation and you will be eligible for a deduction on the interest you pay.
You may be able to deduct up to $2,500 of the interest you paid on student loans on your federal individual income tax return. The deduction is not limited to government-sponsored loans, but does not apply to loans made to students by family members. And, as with most tax rules, if you make too much money the deduction will go away.