Government Matching Contribution for Retirement Savings

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According to researchers, nearly 22 million Americans are set to benefit from a new government matching contribution initiative aimed at enhancing retirement savings. This initiative, part of the Secure 2.0 retirement legislation signed in December 2022, transforms the saver’s credit into a match. The primary goal of this change is to incentivize more lower-income individuals to capitalize on the government’s available contribution.

How It Works

Starting in 2027, lower-income workers who contribute to a workplace savings plan or an individual retirement account can qualify for a government match of $0.50 per dollar, up to $2,000 annually. This translates to a maximum benefit of $1,000.

Key Findings

Research conducted by the Employee Benefit Research Institute reveals that out of the 83.8 million taxpayers meeting the income criteria for the match, 21.9 million have wage income and actively contribute to either an employer-sponsored plan or a Roth/traditional IRA.

Craig Copeland, EBRI’s director of wealth benefits research, highlights that their analysis of the credit provides valuable insights into its scope. He notes that a significant portion of individuals who historically met the income requirements for the program have previously contributed to employment-based plans and Roth IRAs.

Eligibility Requirements

The maximum matching credit will apply to individual filers with adjusted gross incomes below $20,500 ($41,000 for married couples filing jointly), with these thresholds subject to adjustment for the cost of living post-2027. Taxpayers earning slightly above these limits – up to $15,000 more for individuals and $30,000 more for married joint filers – will still qualify for a portion of the matching credit.

Analyzing Retirement Saving Impediments for Lower-Income Americans

The recent analysis conducted by CRS highlights the persistent structural barriers that hinder retirement savings for lower-income individuals. Factors such as limited resources and lack of access to workplace retirement plans continue to pose challenges for this demographic.

Differential Incentives: Saver’s Match vs. Saver’s Credit

CRS analyst Brendan McDermott points out an interesting distinction between the saver’s match and saver’s credit in terms of incentivizing savings. While the saver’s match provides an incentive to save based on a worker’s contributions to a plan, the saver’s credit falls short for individuals with minimal income tax liability, offering limited or no benefits.

Enhancing Awareness and Accessibility

McDermott sheds light on the Treasury Department’s role in promoting the availability of the saver’s match, as outlined in the Secure 2.0 bill. Addressing the lack of awareness among employees, a 2021 survey revealed that only 48% of for-profit company workers were familiar with the credit.

Eligibility and Participation Estimates

Based on 2018 data, EBRI estimates that approximately 18.9 million workers fell within the income parameters to qualify for matching funds by contributing to workplace plans. Additionally, one million individuals eligible for traditional IRA contributions and two million for Roth contributions were identified.

Potential Outreach and Expansion Opportunities

While the current estimates serve as a solid reference point, EBRI acknowledges that more part-time employees are expected to engage in workplace plans. Moreover, the increasing number of state mandates requiring employers to offer retirement plans is anticipated to expand the pool of eligible savers.

Through these key insights and projections, it becomes evident that addressing the structural impediments and enhancing incentives can significantly impact retirement savings engagement among lower-income Americans.

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