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.
Beginning in 2027, the saver’s match will be directly deposited into qualifying retirement accounts. It will be worth 50% of IRA or retirement account contributions up to $2,000 for an individual or $4,000 for a couple. The saver’s match has income limits, and those who earn above a certain threshold will not be eligible for it.
As we approach 2027, it can be helpful to understand the following:
— What is the retirement saver’s match?
— How does the saver’s match work?
— How to get the saver’s match.
— Saver’s match versus saver’s credit.
[Read: How to Reduce Your Lifetime Tax Bill With a Roth IRA.]
What Is the Retirement Saver’s Match?
The saver’s match is a government-funded contribution to an eligible retirement account. If you meet specific 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 salary limits in place.
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,” said Mark Henry, founder and CEO of Alloy Wealth Management in Greenville, South Carolina, in an email.
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 said. Instead, the saver’s match is deposited directly into a retirement account.
[READ: How to Claim the Saver’s Credit.]
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.
How to Get the Saver’s Match
To qualify for the saver’s match in 2027, you must meet certain criteria outlined in the SECURE 2.0 bill.
Your earnings must be below certain income cutoffs. The match will be reduced or eliminated based on a person’s modified adjusted gross income. For single filers, the phaseout 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 phaseout range is $30,750 to $53,250. The phaseout range for married couples begins after $41,000, and couples who earn more than $71,000 will not be eligible.
[Read: 10 Tax Breaks for People Over 50.]
The Saver’s Match Versus the 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,” said Dan DiLascia, a fiduciary financial advisor at Base Wealth Management in Lakewood Ranch, Florida, in an email.
The saver’s credit has different credit amounts 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 nonrefundable 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,” said Charles Zuzak, a certified financial planner and director of financial planning at JFS Wealth Advisors in Pittsburgh, in an email.
“The shift toward a matching contribution system directly deposited into a client’s retirement account is a game-changer for retirement savings,” DiLascia said. “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 more 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 said. “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
Update 03/15/24: This story was published at an earlier date and has been updated with new information.
