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Here's What It Means to Be Middle Class in 2017 -- and How to Benefit From It

By Maurie Backman – Sep 16, 2017 at 8:06AM

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Pay attention, middle earners: If you play your cards right, you can maximize your income and enjoy the financial security that comes with it.

If you clearly aren't rich but also aren't struggling to make ends meet, you might assume that you fall into America's middle class. So it may or may not surprise you to learn that the median household income in the country reached just over $59,000 in 2016, up 3.2% from the previous year. If you're a middle earner, here are a couple of things you should know.

You're eligible to contribute to a Roth IRA

While there's nothing wrong with saving for retirement in a 401(k) or traditional IRA, Roth IRAs offer certain benefits that other plan types simply can't match. For one thing, Roth contributions get to grow completely tax-free, so that when the time comes to take withdrawals in retirement, you won't owe the IRS a portion of your distributions. Furthermore, unlike traditional IRAs or 401(k)s, Roth IRAs don't impose required minimum distributions, which means you can enjoy tax-free earnings on your account indefinitely. You can also leave your Roth IRA behind to your heirs, should you decide to go that route.

Smiling couple

IMAGE SOURCE: GETTY IMAGES.

Not everyone is eligible to contribute to a Roth IRA. If your earnings exceed a certain threshold, you'll be barred from making contributions directly (though you will have the option to convert a traditional retirement account into a Roth, albeit with tax consequences). The following table summarizes the current income limits for funding a Roth IRA:

Filing Status

Contributions Are Phased Out If You Earn...

Contributions Are Banned If You Earn...

Single or head of household

$118,000-$132,999

$133,000

Married filing jointly or qualifying widow(er)

$186,000-$195,999

$196,000

Married filing separately

$0-$9,999

$10,000

DATA SOURCE: IRS.

Since middle earners typically fall within the above ranges for eligibility, it pays to take advantage of the option to save for the future in a Roth.

You can capitalize on a number of key tax breaks

Taxes are a burden for the bulk of Americans, regardless of income level. And while there are numerous tax breaks out there to help soften the blow, many of these phase out once a certain income level is reached. If you're a middle earner, however, there's a good chance you'll get to capitalize on credits or deductions that higher earners can't claim.

For example, the Child Tax Credit gives you $1,000 back on your tax return for every child you have in your household under the age of 17. The credit starts to phase out, however, for single filers earning $75,000, and joint filers earning $110,000, but if you're a middle earner, you'll probably get to claim it in full provided you have children who qualify.

There are also certain educational tax credits you might snag as a middle earner. For example, the American Opportunity Tax Credit offers up to $2,500 to students who are enrolled at least half-time, but it phases out at $90,000 of earnings for single tax filers, and $180,000 for joint filers. There's also the Lifetime Learning Credit, which can be worth up to $2,000 for students. To be eligible, however, you'll need to earn $65,000 or less as a single tax filer, or $130,000 or less as a couple filing jointly.

There are also two key tax deductions available to students: the tuition and fees deduction, and the student loan interest deduction. The former allows you to take up to a $4,000 deduction for tuition and fees, provided your income is less than $80,000 as a single tax filer, or $160,000 as a couple filing a joint return. The latter, meanwhile, lets you deduct up to $2,500 of interest on existing student loans provided your income level falls within the just-mentioned thresholds.

While middle earners in the U.S. certainly have their share of financial challenges, they also have opportunities to save for the future and lower their taxes. The more you educate yourself about the tax breaks and retirement plan options available to you, the better-equipped you'll be to make the most of your income.

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