How I Found My Tax "Sweet Spot" This Year
holding a jar with a taxes label filled with money

How I Found My Tax “Sweet Spot” This Year

Well, I waited until the last minute, but I got my taxes done and paid before the deadline. At this point, while I wouldn’t say I’m good at preparing my returns, I do at least have enough experience to troubleshoot mistakes. On top of that, I also have a decent idea of how the various factors of my somewhat complicated tax situation come together and affect my total bill.

Despite that, I wasn’t prepared to (almost accidentally) walk myself into an optimal tax strategy. So how’d I do it? Let me explain.

Finding Our AGI Tax Sweet Spot With Retirement Contributions

The situation

Between buying a house late last year, paying to break our lease, dealing with expenses for said new house, and other factors, we unfortunately don’t have as much cash in our reserves as we normally do. As a result, while we usually max out at least one of our IRAs each year, we failed to do so this time around. That said, we did plan on making some sort of contribution — but wanted to see how much we owed in taxes first. That way, we could make sure that we could afford to make a contribution and cover our tax bill without doing more damage to our safety net savings.

With that, let me walk you through the process and what I discovered.

The testing phase

Knowing that IRA contributions would lower our taxable income, I decided to see what the optimal contribution might be. Ideally, we’d want to add to our retirement savings — but doing so on top of the tax bill due would be difficult.

The good news is that Turbo Tax makes it relatively easy to see how different contributions would affect my final amount due to the IRS (although I had to skip past the same questions over and over, at least I could see the result). More importantly, the IRS allows you to make IRA contributions up until tax day and apply them to the previous tax year. With that in mind, I figured I’d enter a few different numbers and find the results.

Going into this process, I figured the best idea would be to contribute to a Traditional IRA so that our contributions would be deducted from our taxable income. On top of that, though, I anticipated that the Saver’s Credit would also be a factor — but I didn’t realize just how imperative the latter would be in my case.

About the Saver’s Credit

So what is this Saver’s Credit that turned out to be my saving grace (no pun intended)?

Officially known as the Retirement Savings Contributions Credit, the Saver’s Credit allows eligible taxpayers to earn a tax credit when they contribute to a retirement account during the tax year. This includes both employer-sponsored and individual retirement accounts. Moreover, while Roth IRA contributions are typically not tax-deductible, Roth contributions do qualify for the Saver’s Credit. That said, rollover contributions do not qualify and, if you’ve taken any distributions from your retirement accounts, those may offset your eligible contributions.

Who qualifies for a Saver’s Credit? Well, it’s based on your Adjusted Gross Income (AGI) — which, as the name implies, is your gross income after adjustments such as business expenses, traditional retirement account contributions, etc. For 2024, single files with AGIs as high as $38,250 and married couples filing jointly with AGIs of as much as $76,500 may qualify for a Saver’s Credit. However, this credit is divided into three tiers: 50%., 20%, and 10%. In short, those with smaller AGIs can earn a larger percentage of their qualified retirement contributions back in the form of a tax credit.

Here’s a look at how the 2024 Saver’s Credit tiers shake out:

Credit PercentageMarried Filing JointlyHead of HouseholdAll other filers
50% of contributionAGI of $46,000 or lessAGI of $34,500 or lessAGI of $23,000 or less
20% of contribution$46,001 to $50,000$34,501 to $37,500$23,001 to $25,000
10% of contribution$50,001 to $76,500$37,501 to $57,375$25,001 to $38,250

Another important note is that the Saver’s Credit currently has a cap of $1,000 credit for single filers or $2,000 for married couples filing jointly. For example, a married couple with an AGI of $45,000 in the 2024 tax year who contributes $4,000 to an IRA would max out this credit (as they’d get 50% of the $4,000 in a tax credit for the $2,000 cap). Alternatively, if a couple with an AGI of $49,000 contributed $5,000 to each of their retirement accounts for a total of $10,000, they’d also earn the top tax credit of $2,000.

The other rub is that this credit is capped at the total amount of income tax that you owe and will not result in a refund. Thus, if you owe $1,500 in income taxes total but qualify for a $2,000 Saver’s Credit, you’d only receive a $1,500 credit regardless.

With the stage now set, let’s get to the exciting part:

What I discovered

While running some numbers, I found that there was a certain point where our tax bill would decrease significantly. Yet, while upping the contribution more did continue to lower the amount due, it was a case of diminishing returns. Meanwhile, if I cut back the contribution even slightly, the bill would shoot up. So what was happening?

Well, it turns out that I’d struck upon the “magic number” that lowered our adjusted gross income to the point where we’d moved from the 20% Saver’s Credit threshold to the 50% one. However, since the credit caps out at the amount of income tax that you owe, hitting this 50% threshold immediately maxed out the benefit. That’s why lowering the AGI any further still helped some (by lowering the self-employment tax we owned) but the results weren’t as dramatic.

The results

After confirming that everything was correct, we went ahead with our plan. This called for me to deposit $2,000 in my Traditional IRA and for my wife to do the same with hers. Well, actually, she didn’t have one — so she opened one with Robinhood and immediately contributed. By the way, in doing so, she earned a $20 boost from Robinhood while I, as a Gold member, received a $60 match (which, incidentally, covered my $50 annual Gold fee and then some).

When all was said and done, we ended up contributing $4,000 to our IRAs (albeit Traditional IRAs versus our usual Roth) in order to save around $2,000 on our tax bill. In other words, rather than paying $2,000 to the government, we paid $4,000 to ourselves. While I wish we would have been able to max out our IRAs like in other years, I’m pretty happy with these results and will strive to do better next year.


I realize that this example is extremely specific — but, with more than 300 million people in the United States, I can’t be the only one to find themselves in this type of position. At the same time, would I recommend holding off on your IRA contributions so that you can try to mimic my success? NO!

If you have the capability to max out your IRA, I’d recommend doing so ASAP so that your money can start working for you sooner. Then, whatever tax breaks you qualify for will come.

But, should you find yourself in a situation like mine where you need the most “bang for your buck,” then perhaps paying close attention to the AGI and the Saver’s Credit could help lead you to the best possible solution for both current and future you.

Author

Kyle Burbank

Head Writer ~ Fioney
Kyle is the head writer for Fioney. He is a personal finance nerd, constantly looking for new apps and services to test and incorporate into his own financial game plan. In addition to his role at Fioney, he's written for other publications including Born2Invest, Lifehack, and Laughing Place, as well as his own site Money@30. He also creates personal finance and travel-related videos for Fioney's YouTube channel, which has garnered more than 2 million views. Currently, Kyle resides in Springfield, Missouri with his wife of 10 years. Together, they enjoy traveling (including visiting Disney Parks around the world), dining, and playing with their dog Rigby.

Other Articles by Kyle Burbank

$100 bill covered with wooden houses

Lessons From a First-Time Home Buyer: Average Annual Homeowner Expenses vs. Mine

In one of my daily searches for financial news recently, I came across a report from the site Real Estate Witch (which is owned by Clever Real Estate) detailing how much the average American homeowner spends on their house — not even including their mortgage. What it found was, heading into 2025, the average per year is a whopping $24,529. That figure is up significantly from the $17,958 annual average...
Fold Credit Card

Fold Open Waitlist for Its Bitcoin Rewards Credit Card

The Bitcoin rewards app Fold has launched a waitlist for its long-anticipated credit card. About the Fold Credit Card: Fold, in partnership with Visa, is preparing to debut the Fold Bitcoin Rewards Credit Card. This week, the app opened a waitlist for the new product. Those who sign up will gain early access to apply for the card upon launch. With the Fold Credit Card, members will earn unlimited 1.5%...
Fruituful app and charge card

Fruitful Introduces High-Yield Savings and Cash Back Charge Card

The financial advisory platform Fruitful has announced two new features for its members. About Fruitful's HSY and charge card: Members of Fruitful will now have access to two new products: Fruitful Cash Accounts and Fruitful Card. With Fruitful Cash, customers can earn 5% APY. Moreover, the account combines a high-yield savings account with checking account features. In fact, the Fruitful Cash account works in tandem with the new Fruitful Card....
The "Email" field is empty, you must enter some text to proceed.The text you entered in the "Email" field appears to be invalid, please edit it and try again
Get the Latest News Delivered to Your Inbox
Travelers with two Best Western Credit Cards

Best Western Debuts Two New Rewards Credit Cards

After pausing applications for their previous rewards card, the hotel chain Best Western has unveiled a new pair of rewards credit cards with a new issuer. About the Best Western cards: Best Western is partnering with First Bank & Trust and Mercury Financial to introduce two new co-branded credit cards. First up is the no-annual-fee Best Western Rewards Visa Signature Card. With this card, customers can 4x points on Best...
Marriott Bonvoy card and a woman on vacation

Marriott Bonvoy Bold Card Launches Travel Contest

Chase and Marriott Bonoy have unveiled a special contest while continuing to offer its best-ever welcome bonus. About the welcome bonus and Bold Chat Court Contest: Marriott Bonvoy and Chase have launched a special opportunity called the Bold Chat Court contest. As part of this contest, 10 lucky travelers will be awarded 500,000 Marriott Bonvoy points (for a total of 5 million) as well as $5,000. For this contest, the...
Bilt and All Reward logos

Bilt Adds 2 New Transfer Partners Including First 3:2 Transfer Rate

Bilt is once again expanding its travel transfer rewards program — and is even breaking the mold with one new partner. About the new additions to Bilt: This week, Bilt launched partnerships with two more travel brands: TAP Air Portugal and Accor. As a result, Bilt members will now be able to transfer their points to Miles&Go and ALL Reward, respectively. In total, Bilt now has 18 transfer partners including 13...
Fioney Top 10 Must-Read Personal Finance Articles Septemeber 2024

Top 10 Personal Finance Articles of the Month — September 2024

Welcome to Fioney's look at the top 10 personal finance articles of the month. On the first Friday of each new month, we look back at some of our favorite posts published in the weeks prior and highlight them right here. This includes a mix of sites that have become staples of our lists as well as many first-timers. To start things off this month, we'll look at some articles...

2024 SoFi Checking and Savings Review

Ever since I started taking an interest in the FinTech sector, one company whose name I’ve seen pop up over and over again is SoFi. Lately it seems as though that theme has been sent into overdrive as the company has not only become a household name thanks to its stadium naming rights deal but also because of the company’s continued product expansions. The most interesting development in my mind...