Saving for Retirement on a Modest Income

Apr 13, 2023 11:00:00 AM / by Jason Shaw

modest income retirement

Saving for retirement is particularly challenging for those living on a modest income.  You may feel as though there isn’t any money left after covering your basic expenses each month. Even if you manage to put away a few dollars, investing in an IRA often involves an initial deposit of at least $1,000.  Low- to moderate-income earners do have some tools available to help them get started, however. If you have found it difficult to begin saving for retirement, these tools and incentives can help.

Incentive: Saver’s Credit

The savers’ credit is one of the best incentives for those with modest incomes to put money away for retirement.  Those who fall below the limits on adjusted gross income (remember, this is often considerably less than your total income!) can earn up to a $1,000 tax credit ($2,000 for couples filing jointly).  The specific amount of your credit is determined by a percentage of your retirement contributions for the year, which is based on your level of income. The credits in the chart below are available for contributions up to $2,000 ($4,000 for joint filers).

Amount of Credit Married Filing Jointly Head of Household Single & Others
50% ≤ $43,500 ≤ $32,625 ≤ $21,750
20% $43,501 - $47,500 $32,626 - $35,625 $21,751 - $23,750
10% $47,501 - $73,000 $35,626 - $54,750 $23,751 - $36,500
0% >$73,000 >$54,750 >$36,500

If you qualify, this tax credit can make putting away a little money each month very attractive. Not only will you get the peace of mind of knowing that you have begun planning for your retirement, but you could also get a nice addition to your tax refund next year. Keep in mind, however, that this is a non-refundable credit, meaning that it will not take your federal tax obligation below $0.

How to Begin


The Obama Administration made it easier for low- to moderate-income Americans to begin the retirement planning process by introducing the myRA (my Retirement Account).  Although basically a variation on the Roth IRA, the myRA has a couple of advantages for those at lower income levels.  First, an account can be opened with as little as $25, and you can make contributions of as little as $5 per payday.  These low minimum requirements make the myRA much more accessible to low-level earners than most private-sector Roth IRAs.  Second, the myRA is backed by the U.S. government and guaranteed never to lose value.  It earns the same variable interest rate as the Thrift Savings Plan’s Government Securities Investment Fund which is available to federal employees. As with any Roth IRA, wage earners with an adjusted gross income of less than $129,000 ($191,000 for joint filers) are eligible to contribute.

The myRA is not necessarily the best choice for all who qualify, however.  Although the money is secure, the rate of return is not on par with that of IRAs that include equities investments.  If you have the $1,000 to open a private sector Roth, that investment will have more potential to grow.  If you do not have that initial investment, however, the myRA might be just the place to start building it.

Private Sector Roth IRA

For those with modest incomes, a Roth IRA is usually a tax-effective way to save.  This is because unlike a traditional IRA, for which contributions are tax-deductible but withdrawals are taxed, a Roth IRA is funded with post-tax dollars that grow and can be withdrawn tax-free.  If your income is low enough that you already pay little or no federal tax (remember to account for your saver’s credit!), then tax-deductible contributions provide you little or no benefit.

You have many choices about how to open your Roth IRA.  Different types of providers offer different types of investments. An index mutual fund can be a good choice for beginning investors. They are simple, available at a relatively low cost, and tend to perform steadily over time, often outperforming actively managed funds.

Many credit unions offer Roth IRAs that have low minimum initial deposits, but these often earn low returns, often 0.5% or less.  If you don’t yet have the funds to open a higher-earning Roth, then a myRA is likely to provide you with a better return on your investment until you get it saved up.


Boelman Shaw Tax & Financial Planning provides comprehensive retirement services to our Des Moines area clients. We can answer your questions about both traditional and Roth IRAs as well as other retirement investments you may be considering.  

Tax and accounting services provided through Boelman Shaw & Company, LLC. Advisory services provided through BSC Capital Partners, LLC a state of Iowa registered investment advisor.

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Topics: Financial Planning, Retirement

Written by Jason Shaw