About the saver's credit: based on the $200 figure you reported, it sounds like you're in the income bucket that gets you a 10% saver's credit and your spouse isn't contributing anything to retirement accounts. You're allowed to contribute to an IRA for your spouse even if they don't earn any money on their own. By contributing at least $2,000 to your spouse's IRA, that would increase your saver's credit to $400. If I were in your shoes, that might be the first thing I would do.
Roth or traditional IRA? If you can make enough traditional contributions to bring your AGI down below $39,500, that would increase your saver's credit from $400 to $800. This is probably worth doing if at all possible. If you can contribute another $3,000 on top of that into traditional IRAs or your 403(b), your saver's credit could go up to $2,000 (or your total tax before credits, whichever is lower). The EITC and child tax credit would then be added on top of this to make your total federal tax be quite negative.
I believe that for the purpose of the EITC, it's generally better to make 403(b) contributions than traditional IRA contributions because money that you contributed to the 403(b) doesn't show up on your W-2 so it doesn't even count as "earned income" for this purpose. So contribute $2,000 to a traditional IRA for your spouse and then put enough into your 403(b) to get your AGI below $36,500 to really hit the saver's credit sweet spot. Once you get to this level, if you still have money left to save, go with Roth because your saver's credit is already erasing all of the federal tax it can.
Actually my husband is putting money in our retirement account. I am ineligible for the saver's credit because I just graduated grad school.
Ah, makes sense. Are you 100% certain that the number of credits you were registered for during your last semester was enough for your university to consider you a full-time student? When I was in grad school, I was taking six credits at a time while also being a TA. The university considered anything less than eight credits to be a part-time enrollment, which did allow me to claim the saver's credit.
Regardless, there are still pretty compelling benefits to getting your income below that $36.5k level if possible, just not quite as much as if you can both claim the saver's credit.
I am not going to get my spending down $4000 by the end of the year. Though, honestly I am not sure the great benefits of getting it that low. Especially when I already only am paying about $645. I can't see how that out weighs the Roth.
But no, I was a full time student.
I typed some numbers into the
case study spreadsheet to make some comparisons. For all of the below comparisons, your husband contributed $2,000 to a traditional IRA. Any additional contributions are to your 403(b).
With $40,000 AGI, you have a saver's credit of $200, EITC of $423 and total federal income tax of -$83.
With $38,000 AGI, you have a saver's credit of $400, EITC of $743 and total federal income tax of -$807.
With $36,000 AGI, you have a saver's credit of $1,000, EITC of $1,063 and total federal income tax of -$1,923.
Contributing an extra $4,000 to your 403(b) might only reduce your take-home pay by $1,840, minus any change in state tax. That's over a 50% marginal tax rate on this income! This definitely outweighs the Roth unless you plan on having a marginal tax rate of over 50% in retirement. Not likely!
If you can't afford it you can't afford it, but the benefits are quite real if you can make it work.