Please ensure Javascript is enabled for purposes of website accessibility

Earn Up to $2,000 Just for Saving Money in a Roth IRA

By Charlene Rhinehart, CPA - May 1, 2021 at 7:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you qualify, you can earn an exclusive tax credit for saving in a retirement account.

The Saver's Credit, also known as the Retirement Savings Contribution Credit, is one of the most appetizing rewards for low- to middle-income taxpayers who are thinking about stashing money away in a Roth IRA

If you qualify, this IRS perk allows you to claim a credit up to $1,000 (single filers) or $2,000 (married couples filing jointly). This is a valuable addition to your tax return, allowing you to reduce or completely eliminate your tax bill. It goes without saying that if you reduce your tax tab, you get to keep more money in your pockets. 

Unfortunately, most people who fit the bill for this credit don't even take advantage of it. Let's break down the qualifications and how this credit can make Roth IRA contributions a bit more exciting. 

Young couple holding money in their hands.

Image source: Getty Images.

Get extra credit for saving

Saving toward retirement has never felt better. Every dollar you save in a Roth IRA could help you unlock a special surprise during tax time. The Saver's Credit is a chance for taxpayers on the lower end of the tax rate scale to make the tax code work in their favor by claiming a 50%, 20%, or 10% credit for contributions made to a qualified retirement account. 

Keep in mind that the Saver's Credit is nonrefundable, which means it allows you to reduce your tax bill to zero, but not beyond that. You won't get a tax refund but you could potentially wipe away your tax bill. Credits give you a dollar-for-dollar reduction on the taxes you owe so it's something worth looking into. 

The concept of claiming a tax credit by saving for retirement is fairly simple. But the Saver's Credit calculation table can be a bit mind-boggling if tax calculations are foreign to you. I'll break that down later. The most important piece of the equation is saving for retirement -- even if you don't qualify for the Saver's Credit. For 2021, each person under 50 can typically contribute up to $6,000 to a Roth IRA. 

Determine if you qualify 

Here's the moment you've been waiting for: the eligibility test. If you answer no to the following questions and have made contributions to your Roth IRA during the year you file your tax return, you've passed the first round of eligibility.

  • Are you under 18? 
  • Are you a full-time student? 
  • Will you be claimed as a dependent on someone else's return? 

Now, it's time for the income test. Your credit phases out when you surpass certain income levels. But if your adjusted gross income exceeds the thresholds below, you've missed your shot at the Saver's Credit for 2021: 

  • $66,000 for married couples filing jointly 
  • $49,500 for the head of households 
  • $33,000 for all other filings statuses 

Calculate your credit 

Let's say you are married and earn $39,000 in 2021. Your spouse was unemployed and did not have any money coming in. If you contribute $4,000 to a Roth IRA, your income and married filing jointly tax status would qualify you for a credit of 50% of your contribution. That means your total credit would be $2,000 on your 2021 tax return.

The below table shows the income ranges for the 50%, 20%, and 10% credit for each filing status. 

2021 Saver's Credit rate and AGI eligibility by filing status


Married Filing Jointly AGI

Head of Household AGI

All Other Filers AGI

50% of your contribution 

$0 to $39,500

$0 to $29,625

$0 to $19,750

20% of your contribution 

$39,501 to $43,000

$29,626 to $32,250

$19,751 to $21,500

10% of your contribution

$43,001 to $66,000

$32,251 to $49,500

$21,501 to $33,000

Data source: IRS.

Don't miss out on Roth IRA benefits 

Even if you don't qualify for the Saver's Credit, contributing to a Roth IRA is still a good idea. You could have thousands of dollars or even a million-dollar jackpot waiting for you when you retire. 

The Roth IRA allows you to contribute money you've already paid taxes on to fund the account. Then, you select assets of your choice and watch your investments grow tax-free. The power of compounding over decades can leave you with a healthy nest egg and you won't have to give the IRS a dime of your money after you've reached age 59 1/2.

When you tack on the Saver's credit, the rewards are even sweeter. If a married couple earns a $2,000 annual credit and contributes a total of $120,000 over two decades, that equals $40,000 worth of credits and tax savings. That's effectively like a couple contributing $80,000 to their retirement accounts and getting a big match from the government.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.