The SECURE 2.0 law creates a saver’s match, designed to help individuals save for retirement. The match will eventually replace the saver’s credit. While there are some similarities between the two, there are also differences to note.
The saver’s match:
— will replace the saver’s credit beginning in 2027.
— will be directly deposited into a retirement account.
— will be worth 50% of IRA or retirement account contributions up to $2,000 per individual and $4,000 per couple.
— will be available to those earning up to $35,500 as an individual, $53,250 as a head of household or $71,000 as a married couple.
[READ: How to Claim the Saver’s Credit.]
What Is the Retirement Saver’s Match?
The saver’s match refers to a government-funded contribution to an eligible retirement account. If you meet certain retirement savings and income criteria, the federal government will directly deposit an amount into your designated retirement account. The match provides benefits primarily for lower income earners, with limits in place pertaining to salary.
Individuals who earn above a set amount will not qualify for the match. “It’s one of the more unique ways the government is incentivizing lower and middle income taxpayers to save for retirement,” says Mark Henry, founder and CEO of Alloy Wealth Management in Greenville, South Carolina.
The saver’s match will serve as an upgrade from the saver’s credit. “Under the old system, which will remain in place through 2026, the saver’s credit is applied as a reduction of one’s tax liability,” Henry says. The saver’s match is instead deposited directly into a retirement account.
How Does the Saver’s Match Work?
The saver’s match is worth 50% of qualifying retirement account contributions of up to $2,000 per individual. Taxpayers who file as individuals could get up to $1,000 from the federal government. Married couples who file jointly can qualify for up to $2,000 if they make qualifying contributions to an IRA or workplace retirement account.
[Read: How to Maximize Your 401(k) Match.]
How to Get the Saver’s Match
The saver’s match goes into effect in 2027. To receive the contribution, you’ll need to meet certain criteria outlined in the SECURE 2.0 bill. At that time, the federal government will provide a 50% match for the first $2,000 contributed to a qualifying retirement account. The matching funds will be placed directly into a designated retirement account.
Your earnings must be below certain income cutoffs to be eligible for the saver’s match. The match will be reduced or eliminated based on a person’s modified adjusted gross income. “Eligibility for this program will phase out once AGI surpasses $41,000 for married filing jointly taxpayers,” Henry says.
The match is not available for those who make more than $71,000 and file jointly. For single filers, the phase out period begins at $20,500, and individuals who earn more than $35,500 will not be eligible for the saver’s match. For head of household filers, the phase out range is $30,750 to $53,250.
[READ: How Much Should You Contribute to a 401(k)?]
Saver’s Match vs. Saver’s Credit
The saver’s match differs in some ways from the saver’s credit. The saver’s credit allows individuals to claim a tax credit for eligible contributions to their qualifying retirement plan. The credit depends on the taxpayer’s adjusted gross income. The maximum credit is $1,000 for single filers and $2,000 for married couples who file jointly.
“This tax credit can help individuals save for retirement by lowering their tax liability and providing an additional financial incentive to contribute to a retirement account,” says Dan DiLascia, a principal and financial advisor at Base Wealth Management in Lakewood Ranch, Florida.
The saver’s credit has different credit amounts that are based on income. The saver’s credit could be worth 50%, 20% or 10% of retirement account contributions, with higher earners receiving lower credits. The saver’s match offers a 50% match that doesn’t change based on your income among those who qualify for the match.
Unlike the saver’s credit, which comes in the form of a tax credit on your return, the saver’s match goes directly toward retirement savings. “The current law provides this benefit in the form of a non-refundable tax credit, and the saver’s match converts it into a federal matching contribution that must be deposited into a taxpayer’s IRA or retirement plan,” says Charles Zuzak, director of financial planning at JFS Wealth Advisors in Pittsburgh.
“The shift towards a matching contribution system directly deposited into a client’s retirement account is a game-changer for retirement savings,” DiLascia says. “It removes the unnecessary friction of having to claim the tax credit while also encouraging clients to take an active role in their financial future.”
The saver’s match provides a streamlined approach to long-term savings. “The goal of the saver’s match is to actually encourage saving for retirement rather than encouraging a tax break since the funds are deposited into a retirement account rather than received in the form of a tax credit,” Zuzak says. “Individuals have the potential to receive a greater benefit.”
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How to Qualify for the Retirement Saver?s Match originally appeared on usnews.com
