Saving for retirement is an essential component of long-term financial planning. But it’s also difficult, especially for those who have trouble enough making ends meet to pay their regular living expenses.
Historically, the Internal Revenue Service has tried to encourage people to save for retirement, especially among lower-income Americans. The Retirement Savings Contributions Credit, or Saver’s Credit for short, helped roughly 10 million taxpayers get money back from the IRS to help finance their retirement savings. But if lawmakers in Washington have their way, a new proposal could open up federal matching to a lot more people.
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The limitations of the current Saver’s Credit
Under current law, the Saver’s Credit rewards those who make contributions to qualifying retirement plans like IRAs and 401(k) plans. Those who are 18 or older, not a full-time student or dependent, and meet the income limits below can get a tax credit for 10%, 20%, or 50% of what they contribute toward their retirement.
Here’s a look at the 2022 Saver’s Credit income thresholds:
Credit Percentage
Single or Married Separate
Head of Household
Married Joint
50% of contribution
$0 to $20,500
$0 to $30,750
$0 to $41,000
20% of contribution
$20,501 to $22,000
$30,751 to $33,000
$41,001 to $44,000
10% of contribution
$22,001 to $34,000
$33,001 to $51,000
$44,001 to $68,000
Data source: IRS.
The biggest problem with the current Saver’s Credit, though, is that it’s a nonrefundable tax credit. That means that if you don’t have any tax liability to offset, the credit isn’t worth anything to you. That’s the case for many of the low-income taxpayers that the Saver’s Credit targets.
A new Saver’s Match
Federal legislation proposed as part of what’s known as SECURE 2.0 would replace the Saver’s Credit with a new Saver’s Match. Rather than being a tax credit, this new provision would take government money and deposit it directly into your qualifying retirement account. Those who qualify would get a 50% match on up to $2,000 in retirement savings each year.
Moreover, a different method for determining eligibility would put more money into more taxpayers’ accounts. The match would phase out for single filers with incomes between $20,500 and $35,500, heads of household with incomes of $30,750 to $53,250, and joint filers with incomes of $41,000 to $71,000. Those brackets are similar to the current Saver’s Credit brackets, but the phase-out provisions would have a less abrupt reduction in the value of the tax break as income rises.
Most importantly, because the Saver’s Match wouldn’t be a credit, you wouldn’t need tax liability to reap its rewards. Policy advocates believe that would make more than 108 million Americans eligible for the new retirement savings incentive, including gig workers and many government workers who don’t qualify for matching contributions in their current retirement plan accounts.
Will the Saver’s Match become law?
The SECURE 2.0 bill has received considerable bipartisan support in Congress, with proposals having gone through the House Education and Labor Committee, the House Ways and Means Committee, the Senate Finance Committee, and the Senate Health Education Labor and Pensions Committee. Earlier this year, the House of Representatives passed a version of the bill by an overwhelming 414-5 margin.
The Senate hasn’t been as quick to pick up the bill, however, and there are some differences in the specific provisions between the Senate’s own version of the proposed law and the version that the House already passed. With time running out during the lame-duck Congressional session, it’s unclear whether lawmakers will get the job done before 2023 — when it would essentially have to start over.
Nevertheless, with so many people understanding the need to encourage retirement savings, an expanded Saver’s Match would do a lot to provide real incentives to more Americans than ever. That could pay big dividends in the long run.
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