The SECURE 2.0 Act was recently signed into law by President Biden. Coming just a few years after the first SECURE Act, this legislation makes a bevy of changes designed to make it easier for Americans to save for retirement including creating mandatory enrollment for defined contribution plans, allowing for more catch-up contributions and increasing the age for required minimum distributions until 75.
One change that will especially impact lower- and middle-income Americans is the canceling of the “Saver’s Credit” into a new program called the “Savers Match.”
For more help with saving, consider working with a financial advisor.
How the Saver’s Credit Works
The Saver’s Credit — originally called the Retirement Savings Contributions Credit — was created by the government in the early 2000s. It is designed to help those with relatively small incomes save for retirement — something that can be difficult when seemingly every bit of your paycheck has to be used for day-to-day life.
The Saver’s Credit is worth a percentage of your contributions; that percentage can stand at 10%, 20% or 50% depending on your filing status and adjusted gross income. The maximum value of the credit is $1,000 ($2,000 for couples filing jointly).
Remember that this is a tax credit, not a tax deduction. Rather than subtracting from your taxable income, this money goes directly towards lowering what you owe. Let’s say you owe $1,500 in taxes and you have a $1,000 saver’s credit; now you owe just $500. That said, the credit is not refundable. If you owe $500 and have a $750 credit, you don’t get $250 back; you simply have no tax liability.
The New Saver’s Match
The Saver’s Credit will still be around for a few years, but in 2027 it will be replaced by the Saver’s Match. This plan still gives money to low- and middle-income people looking to save for retirement, but rather than taking money off of their tax bill, it puts even more money into their retirement plan account.
The matching contribution will equal 50% of the first $2,000 you put into an eligible retirement account — which doesn’t include Roth accounts. This money will not count against your annual retirement plan contribution limits. The percentage is not impacted by your filing status or total income. Also changing, this won’t be impacted by your total tax liability. If you are eligible for a $1,000 match, you get the whole amount even if you owed less than that on your taxes.
There will be phase-out ranges for the new program. To get the full credit, you must have an annual gross income of less than $20,500 for single savers, $41,000 for married couples filing jointly and $30,750 for head-of-household filers. After your income hits that mark, the maximum match goes down until you reach the top threshold — $35,500 for single filers, $71,000 for joint filers and $53,250 for heads-of-household. If your AG is worth more than that, you aren’t eligible for this match. The phaseout ranges will be updated for inflation each year.
The matching contributions won’t be subject to any taxes and can’t be garnished for things like child support.
The Bottom Line
The Saver’s Credit helps low- and middle-income people by giving them a tax credit based on their retirement savings. The SECURE 2.0 Act, though, will get rid of that program in 2027 in favor of a new program called the Saver’s Match. This new program will put money directly into the retirement account of these workers, giving them the opportunity to save more money for their later years.
A financial advisor can help you get everything in line for your retirement savings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Don’t forget that your job may also offer an employer match if you have a 401(k). Make sure you’re taking advantage of this and not leaving free money on the table.
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