Contributing to a retirement account may be the last thing on your mind if you're swamped with bills and not earning as much as you'd like. Plus, if you're working gig jobs without a retirement plan at work, it can be even harder to justify opening a retirement account on your own.
However, there's one benefit that could make contributing to a retirement account, such as a Roth IRA, more attractive -- especially if you think you'll owe taxes this year. If you're a taxpayer in the low- or moderate-income bracket, here's one perk you don't want to miss.
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Explore the Saver's Credit in 2024
According to the 24th Annual Transamerica Retirement Survey, 53% of American workers are unaware that they may be eligible for a Saver's Credit for saving money in a Roth IRA, which could lower their tax bill. This credit is particularly valuable for gig workers who may not be paying taxes throughout the year.
For example, if you are a gig worker for Uber Eats and DoorDash and end up owing $900 in taxes for 2024, you could qualify for a Saver's Credit worth up to $1,000 if you are single and contribute to a retirement account. For married individuals, the Saver's Credit could be as much as $2,000. If you qualify for the maximum Saver's Credit amount as a single filer, your $900 tax bill would be completely eliminated. However, since the Saver's Credit is nonrefundable, you would not receive a refund for the remaining $100.
Essentially, the Saver's Credit allows you to put some of your earnings toward retirement savings instead of handing it over to the IRS.
How the 2024 Saver's Credit and Roth IRA work
Although the Saver's Credit can be a great benefit, there are certain qualifications you need to meet to receive it. First, you must be at least 18 years old. You also can't be a full-time student or be claimed as a dependent on someone else's tax return. On top of that, you must contribute to a qualified retirement savings plan, and a Roth IRA fits the bill.
If you expect to be in a higher tax bracket later, it may be ideal to contribute to a Roth IRA now because you contribute after-tax dollars and pay your tax bill upfront. When you turn 59 1/2 and have met the requirements of the five-year rule, you'll be able to withdraw all the money in your account 100% tax-free. However, your income must be below a certain threshold in order to make direct contributions to a Roth IRA.
Another thing you want to keep tabs on for the Saver's Credit is your income. If it exceeds the limit, you won't be able to claim the Saver's Credit in 2024. However, if you qualify, you could earn a credit worth 50%, 20%, or 10% of your contribution, depending on your filing status.
Let's say you are a single filer and qualify for the 50% credit. If you set aside $2,000 in a Roth IRA, you would qualify for a credit worth $1,000 (50% of $2,000). Even if you contribute the maximum amount to a Roth IRA, which is $7,000 in 2024 for savers under 50, your credit would still be worth $2,000. That's the maximum credit a single person can claim.
Check out the table below to see if you might qualify for the Saver's Credit in 2024 based on your adjusted gross income (AGI) and filing status.
|
Amount of Your Tax Credit Based on Income and Filing Status for 2024 |
Married Filing Jointly (AGI) |
Head of Household (AGI) |
All Other Filers (AGI) |
|---|---|---|---|
|
50% of your contribution |
$0 to $46,000 |
$0 to $34,500 |
$0 to $23,000 |
|
20% of your contribution |
$46,001 to $50,000 |
$34,501 to $37,500 |
$23,001 to $25,000 |
|
10% of your contribution |
$50,001 to $76,500 |
$37,501 to $57,375 |
$25,001 to $38,250 |
|
0% of your contribution |
Over $76,500 |
Over $57,375 |
Over $38,250 |
Data source: IRS.
The benefits of a Roth IRA and Saver's Credit may sound too good to be true, but consider it an incentive to save for your future self. If you take advantage of this offer from the IRS, you may be eligible to pay less in taxes while starting to work toward the retirement you've always dreamed of.
