(calculations are done for 2015, single, no dependents, and standard deduction, but it seems results hold for married too)
Let's say your IRA/401(k) contributions got you to the very point where you can take advantage of Saver's credit, that is, AGI of $30,500.
Your $2,000+ retirement contribution gives you $200 in non-refundable tax credit.
Tax bracket for $30k is 15%, so you owe 10% of $9,225 and 15% of $14,975 (= 30,500-9,225-6,300) --- altogether $3,168.50.
But the personal exemption is $4,000, so not only you can't use your $200 saver's credit, you're still wasting over $800 of your other tax credit!
Where did I go wrong in the analysis?
Let's say your IRA/401(k) contributions got you to the very point where you can take advantage of Saver's credit, that is, AGI of $30,500.
Your $2,000+ retirement contribution gives you $200 in non-refundable tax credit.
Tax bracket for $30k is 15%, so you owe 10% of $9,225 and 15% of $14,975 (= 30,500-9,225-6,300) --- altogether $3,168.50.
But the personal exemption is $4,000, so not only you can't use your $200 saver's credit, you're still wasting over $800 of your other tax credit!
Where did I go wrong in the analysis?
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