Did you know that the government wants to give you a lot of money toward your retirement? In fact, depending on your financial situation and the amount you're willing to invest for your future, you could score up to $9,620 in free cash from Uncle Sam to help prepare for your later years. 

Here's how to do it. 

Smiling woman putting money into piggy bank.

Image source: Getty Images.

Scoring thousands in free retirement money is easier than you might think

To get free retirement money from the government, invest in a retirement account that provides tax breaks for your contributions. 

One of the most common is a 401(k), and it has larger annual contribution limits than most other tax-advantaged retirement accounts. In 2020, you can contribute up to $19,500 to your 401(k) if you're younger than 50, or a maximum of $26,000 if you're 50 or over and are eligible for catch-up contributions.

These are pre-tax contributions, so you won't have to claim the funds as income and won't pay taxes on the money. Because your contribution won't reduce your take-home pay as much due to the tax savings, the contribution will effectively cost you less right now.

If you max out your entire $26,000 contribution and you're in the 37% tax bracket, the government subsidy would be worth up to $9,620 in saved taxes. You'd only spend $16,380 to end up with $26,000 saved, effectively receiving $9,620 in free cash from Uncle Sam.

You do eventually have to pay taxes on 401(k) withdrawals. That means this free money doesn't work exactly like most government subsidies -- you're essentially just saving on taxes now and deferring your payment until later. But because you can earn tax-free gains on money throughout your working years and because chances are good you'll be in a lower tax bracket as a retiree, you're getting free money to invest today and paying some back in taxes later at a potentially reduced rate. 

Most people aren't in the 37% tax bracket, and most don't max out their 401(k) accounts. But that doesn't mean you can't net a fortune in free money, either. The chart below shows how large of a government "subsidy" you could receive for each $1,000 contribution you make depending on your tax bracket, and assuming that the contribution doesn't reduce your marginal tax rate. 

Chart showing the value of government subsidies of 401(k) contribution.

Image source: Getty Images.

If your contribution causes you to drop to a lower tax bracket, your savings would be a little lower. But the bottom line is, the government is ready and willing to provide help in securing your future. And you don't have to itemize to claim a deduction for 401(k) contributions, either, which makes it much easier for the majority of Americans to get this valuable government help. 

The best part is, the free money you get from the government may not be the only extra money you get when you contribute to your 401(k). If your employer matches your contributions, as many do, you'll also get some extra cash for your company as well.

Say your employer matches 50% of your contributions up to a certain percentage of your salary. If you haven't exceeded that percentage and you contribute $1,000 to your 401(k), that contribution would cost you just $780 if you were in the 22% tax bracket. If your employer gives you another $500 in matching funds, you've just turned $780 into $1,500 before even purchasing a single investment.

You can't afford to pass up all this free retirement cash, so if you have access to a workplace 401(k) plan, you should get as close to maxing out your contributions as possible. If you do, the government (and possibly your employer) will give you a lot of help building your financial security.