Established low-earners using a tax-advantaged account will generally qualify for the Saver's Credit. This means that they can get up to $1000 in tax credits. Depending on how much they save.
How Much is the Saver’s Tax Credit
While the credit is capped at $1000 dollars, the rate at which it applies is based on the filer's Adjusted Gross Income (AGI): it starts at 50%, then goes to 20%, then goes to 10%.
Because Traditional contributions decrease AGI but Roth contributions do not, this creates a heavy incentive towards Traditional accounts. Vanishingly few people at this income level will be able to save $10,000 a year for retirement, which is what would be necessary to get the full credit at the 10% range.
Contribution Type Matters
If a traditional contribution would move you from the 10% range to the 20% range (or especially if it would move you from the 20% range to the 50% range), the Traditional contributions will likely be MUCH better than that Roth option.
Depending on your adjusted gross income reported on your Form 1040 series return, the amount of the credit is 50%, 20%, or 10% of:
Contributions you make to a traditional or Roth IRA
Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan
Voluntary after-tax employee contributions made to a qualified retirement plan (including the federal Thrift Savings Plan) or 403(b) plan
Contributions to a 501(c)(18)(D) plan
Contributions made to an ABLE account for which you are the designated beneficiary (beginning in 2018)
*Rollover contributions from another retirement account don’t count.
Who's eligible for the credit?
Age 18 or older
Not claimed as a dependent on another person’s return
Not a student
You were a student if during any part of 5 calendar months of the tax year you:
Were enrolled as a full-time student at a school, or
Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
A school includes technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, or schools offering courses only through the Internet.