Retirement Saver's Credit set to become Saver's Match in year-end catch-all bill
Tuesday, December 20, 2022
You might have noticed that as 2022 has been winding down, there's been an unofficial theme for the ol' blog's posts. Many of them have focused on tax laws' effects, good and bad, on retirement savings.
Part of that is personal. I like what I do for a living, but with each passing day, I (and the hubby) think increasingly about retirement. We're in good shape, thanks for asking. But lots of people of all ages don't have such positive views of how they'll pay for the days when they finally say adieu to the day-to-day grind.
A new retirement law could help.
Senate Finance Committee Chair Ron Wyden (D-Oregon) today announced that the long awaited bipartisan Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act will be included in the omnibus spending package Congress is looking to pass before ending (soon, we hope!) the legislative branch's 117th session.
Retirement part of catch-all bill: The omnibus measure includes $1.65 trillion that will fund the federal government through September 2023. In what is an official holiday tradition, the year-end bill (H.R. 2617) also has other legislation attached, too, like the SECURE Act.
The retirement component has been in the works since the House in March passed its version by an overwhelming, and amazing given the partisanship on Capitol Hill right now, 414-5 vote. In June, Senate committees responsible for pension plans and finance cleared bills — the Rise and Shine and Enhancing American Retirement Now (EARN) Acts — that contained many of the same House components. Now all those disparate provisions have been reconciled.
The retirement changes are many, with various dates when they will take effect. But the overall aim of the measure is to encourage, often via tax benefits, more of us to save for retirement. In addition to individual provisions, the bill offers companies tax incentives to, among other things, offer workplace plans.
Saver's Credit to become Saver's Match: Among the provisions that stood out to me was the Act's Section 103. It repeals one of the most overlooked individual tax breaks, the Saver's Credit, and restructures it into a government matching contribution of up to $1,000 a year for low- and middle- income workers who save through their workplace 401(k) or personal IRAs.
The Saver's Credit, which as a tax credit provides a dollar-for-dollar offset of tax owed, also is worth a maximum of $1,000 (or 50 percent of eligible retirement plan contributions up to $2,000). But since it is nonrefundable, if your tax liability is less than $1,000, any excess Saver's Credit is wasted.
Plus, getting that cash requires taxpayers to claim the Saver's Credit by filing another form. OK, that's not that hard since most of us use tax software or tax pros to help us fulfill our annual tax filing duty.
Under the SECURE Act, however, the Saver's Credit would become the Saver's Match.
The match would continue to be 50 percent of the taxpayer's IRA or retirement plan contributions up to $2,000 per individual. Instead of being paid at tax filing time, a federal matching contribution of the allowable amount would be deposited into the taxpayer's IRA or retirement plan.
This change would eliminate the lost nonrefundable money. More importantly, the amount would automatically go toward retirement earnings instead of being issued as a refund that probably wouldn't end up as nest egg contribution.
Essentially, this would make the current tax credit more like the employer match in a workplace retirement plan.
As with the Saver's Credit, income thresholds would apply. The Saver's Match would phase out when a single taxpayer, including married filing separately spouses, makes between $20,500 to $35,500; a head of household filer makes between $30,750 to $53,250; and married filing jointly taxpayers making between $41,000 and $71,000.
Of course, the Internal Revenue Service will need some time to incorporate the Saver's Match into its system. The tax agency will get plenty of that. The Saver's Match won't take effect until tax year 2027.
In the meantime, keep contributing to your workplace plan and, if you qualify for it, claim the Saver's Credit. You can read more about this existing retirement credit in my post IRA contribution, and possible tax deduction, time, as well as a look Form 8880 used to claim it in my post Saver's Credit already offers an added nest egg tax break & there's talk of enhancing it.
Final steps to enactment: Of course, for any of the retirement provisions to become law, the omnibus bill must be approved by the House and Senate. Both chambers need to do that by the end of this week, since the federal government's funding runs out at midnight on Friday, Christmas Eve Eve, Dec. 23.
Republicans are making noise about the cost of the omnibus bill. But as a previous Capitol Hill staffer who remembers working deep into December, I know Congressional staff and lawmakers themselves right now mostly just want to be done. With everything.
So here's hoping Representatives and Senators get to the funding (and more) bill before week's end. That would give everyone a bit more time to finish up Christmas shopping and head home before the winter storm hits.
When (or if — we are talking Congress here) the omnibus bill is approved, I'll let you know. And I'll elaborate on some of the other retirement tax law changes when they're official.
Until then, you can check out the Senate Finance Committee summary of the SECURE Act 2.0. And you also might find these previous blog post items of interest:
- Tax-favored retirement saving options for freed-up student debt money
- Tax-favored retirement savings get big boost from 2023 inflation adjustments
- Tax Turkey to Avoid #2: Not collecting your employer's maximum 401(k) match
If you want even more nest egg news, feel free to peruse all my other blog posts in the retirement category.
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