Guest post by Tom Ozimek via The Epoch Times

The Internal Revenue Service (IRS) and the Treasury are preparing to launch a new program aimed at boosting the retirement savings of low and moderate-income Americans by offering taxpayer-funded matching contributions of up to $1,000 annually, deposited directly into their retirement accounts.

 

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The Saver’s Match, introduced as part of the SECURE 2.0 Act, will replace the current Saver’s Credit. Unlike the nonrefundable Saver’s Credit, which only reduces taxes owed, the Saver’s Match offers up to $1,000 in direct contributions to a taxpayer’s retirement account.

The IRS expects this shift to provide greater benefits, particularly for those with little to no tax liability, by enhancing their retirement savings rather than just lowering their taxes.

The agencies are seeking public input on how best to implement the Saver’s Match program, set to launch in 2027. They are particularly focused on simplifying the process for claiming the matching contribution and ensuring that retirement plans and individual retirement accounts (IRAs) can easily accept the contributions, according to a Sept. 5 IRS press release.

“Saver’s Match contributions represent a new approach to promoting retirement savings and an important opportunity to improve the long-term financial security for millions of low- to moderate-income Americans,” the IRS said in a statement, emphasizing the need for public input to ensure that the program meets its full potential.

Key priorities for the IRS and Treasury include determining the most effective way to establish eligibility and distribute contributions. They are also working to streamline the process for taxpayers to claim the matching contribution, particularly those who may not typically file federal tax returns due to low income.

The IRS is also evaluating how to ensure that retirement plans, including IRAs and employer-sponsored 401(k)s, can easily accept these taxpayer-funded contributions. Currently, participation by retirement plans is voluntary, which could limit the program’s reach. To address this, the agencies are considering options for incentivizing more plans to participate.

Eligibility for the Saver’s Match will closely mirror the existing Saver’s Credit, with income-based phase-outs. For single filers, the match will begin to phase out at $20,500 and will no longer be available for individuals earning more than $35,500. For married couples filing jointly, the phase-out begins at $41,000, with a maximum income limit of $71,000. These income thresholds will be adjusted annually for inflation.

One significant difference from the current Saver’s Credit is the exclusion of certain “nonresident aliens” from the Saver’s Match. While the Saver’s Credit does not impose this exclusion, the Saver’s Match will, and the IRS is seeking public input on how to best implement and clarify this restriction.

Another potential issue is how taxpayers who contribute to Roth retirement accounts will navigate the Saver’s Match. While contributions to Roth IRAs qualify for the match, the actual Saver’s Match funds must be deposited into a traditional, pre-tax account, potentially complicating retirement planning for those who favor Roth accounts for their tax-free withdrawals in retirement.

The IRS is also looking into how to address the question of early withdrawal penalties for participants who may need to access their retirement savings for emergencies.

The agencies are seeking input from a broad range of stakeholders, including low to moderate-income taxpayers and IRA custodians, trustees, and retirement plan administrators, with the comment period ending on Nov. 4.

The IRS said that stakeholders are encouraged to share their perspectives on key areas such as eligibility criteria, the process for claiming the matching contribution, and how retirement plans can be encouraged to accept these contributions.

The detailed questions the agencies are asking include what steps could be taken to prevent the Saver’s Match payout to ineligible accounts and how to streamline the process for eligible individuals to claim the matching contribution.

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