Don't Mess With Taxes

Any kind of saving is good, but for your retirement, a better option is a workplace retirement plan or IRA. A new Saver’s Match will help some when it takes effect in a couple of years. (Photo by Diane Helentjaris on Unsplash)

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted at the end of 2022, includes a notable change in how eligible individuals can collect the Saver’s Credit.

This tax credit turns contributions to popular retirement plans, which already are tax-favored, into addition funds. Qualifying lower- and middle-income savers who put $2,000 into an Internal Revenue Service-authorized retirement account can get $1,000 back from Uncle Sam as a tax credit.

As long-time readers know, a tax credit can offset any tax you owe dollar-for-dollar.

Many filers, however, overlook this tax credit. A provision in SECURE 2.0, as the retirement law is popularly known, looks to change that. It will go from tax credit to automatically contributed matching money.

And the U.S. Treasury and Internal Revenue Service want our thoughts on how to make this new retirement savings option work best for all involved.

Saver’s Match limits: In 2027, the Saver's Credit will become a contribution made by the U.S. Treasury to qualifying taxpayers’ designated accounts. These will be the filer’s workplace 401(k)-type plan or their personal traditional IRA.

Why not a Roth IRA or, for that matter, a Roth workplace plan? Technically, these types of retirement accounts that are funded with after-tax dollars do qualify for the match. However, match money cannot be deposited into Roth vehicles because the match will be structured as a pre-tax traditional contribution that will be taxed as ordinary income when withdrawn.

As is the case with the current credit, the Saver’s Match contribution also will have some income limitations.

The Saver’s Match contribution begins to phases out when the combined income of a married couple filing a joint tax return hits $41,000. The contribution match will end if the spouses earn more than $71,000. For single taxpayers, the match phaseout begins at begins at $20,500 and ends at $35,500.

Those earnings phase-out ranges will be adjusted annually for inflation.

Research released in March by the Employee Benefit Research Institute shows that nearly 22 million workers will qualify for the Saver’s Match.

Credit to contribution plusses: The transformation from a nonrefundable tax credit into the newly-dubbed Saver’s Match does offer both administrative and financial benefits for eligible taxpayers, who already are doing their part to save for retirement.

From the process standpoint, it eliminates a separate form at tax-filing time. Rather than having to claim the Saver’s Credit at tax-filing time, wait for the IRS to issue the money, and then put it into a retirement account, the Treasury will automatically add the potential $1,000 maximum to the taxpayers’ designated retirement account.

Financially, putting more money into savings earlier means more growth and a bigger retirement nest egg.

“This has the opportunity to be huge,” Kim Olson, a senior officer for retirement savings at the Pew Charitable Trusts, told PLANADVISER, an information and resource website and magazine for retirement plan decision makers. Olson is spearheading a project to help the Department of the Treasury and the IRS get the Saver’s Match up and running by 2027. 

Public comment sought on the change: Since this credit-to-contribution change won’t take effect for more than two years, you might be asking why blog about it now?

Because Treasury and the IRS already are working on making the shift from Saver’s Credit to Saver’s Match as smooth as possible. And they want your thoughts on just how to do that.

Last week, the Internal Revenue Service issued Notice 2024-65, officially requesting public comments on all aspects of Saver’s Match contributions. The tax agency also has some specific questions on a variety of Saver’s Match topics it would like you and I to answer.

The IRS announcement of the public comment period noted some areas, identified with the letters A through G in the notice, where it is seeking specific input. They are —

1. Eligibility for Saver’s Match contributions
2. How Saver’s Match contributions would be claimed
3. How the account receiving Saver’s Match contributions would be designated
4. The process for completing Saver’s Match contributions
5. Saver’s Match recovery taxes on specified early distributions
6. Reporting and disclosure for Saver’s Match contributions
7. Miscellaneous issues, including how Treasury and the IRS could ensure that individuals in underserved communities know how to participate and receive the full benefits of Saver’s Match contributions.

Within each of these general topics, the IRS notice asks 29 specific questions on the upcoming Saver’s Match program and its implementation and operation.

Section C about the account receiving the matching contributions has me thinking about workplaces that offer employees Roth 401(k)s, and how they and their workers can utilize the government match.

Presumably, these companies would have to establish a second traditional account for workers, or come up with some other solution to ensure match money gets to every eligible claimant. If you have a creative alternative option, let Treasury and the IRS know.

How to comment: Uncle Sam wants input from as many people representing different perspectives as possible so that the match program can reach its full retirement savings potential.

The notice specifically asks for comments “from all stakeholders, including low- to moderate-income taxpayers, volunteer and for-profit tax preparers, organizations that serve and advise low- to moderate-income taxpayers, IRA custodians and trustees, and retirement plan administrators, recordkeepers, and plan sponsors.”

You can let the IRS and Treasury know your thoughts electronically at www.regulations.gov. Typing Saver’s Match into the search section will take you to Request for Comments Regarding Implementation of Saver’s Match Contributions. There, just click on the comment button, highlighted below, and start typing.

You can attach files, photos, etc., that support your suggestions.

You also can read posted comments. Remember that option is available to all who visit the comment page, so keep in mind your mom’s advice about how and what to say in public when you submit your ideas.

If you prefer to make less immediately visible written comments, mail your suggestions to —

Regardless of how you comment, be sure to do so by the Nov. 4, 2024, deadline, which also is this weekend’s By the Numbers figure.

You also might find these items of interest:

• Make retirement plans now to claim the Saver's Credit
• Some Social Security recipients owe tax on federal retirement benefits
• Retirement Saver's Credit set to become Saver's Match in year-end catch-all bill

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