What You Need to Know
- The bill changes the nonrefundable saver's credit into a refundable retirement plan contribution.
- The credit would also be available for contributions made to ABLE Accounts.
- The bill also extends the full 50% credit rate to individuals earning up to $32,500, up from $19,750 currently.
Senate Finance Committee Chairman Ron Wyden, D-Ore., and six Democratic colleagues introduced Thursday the Encouraging Americans to Save Act, legislation to help working and middle-class families save for retirement, including a 50% government match on contributions of up to $2,000 per year made to 401(k)-type plans and IRAs.
The Encouraging Americans to Save Act restructures the existing, nonrefundable saver’s credit into a refundable, government matching contribution of up to $1,000 a year for middle- and moderate-income workers who save through 401(k)-type plans or IRAs. Structuring the payment as a matching contribution will make it available to more Americans, Wyden says.
The legislation also includes a COVID-19 recovery bonus credit that provides up to $5,000 in additional government matching contributions for the first $10,000 saved during a five-year period beginning in 2022, Wyden explained.
Currently, a couple earning $39,500 or less can receive a tax credit of 50% of the amount, up to $2,000, saved in retirement accounts. The credit then phases out, ending completely at income of $66,000 per couple or $33,000 per individual.
Wyden’s bill would replace the current saver’s credit with a 50% government match on contributions of up to $2,000 per year made to 401(k)-type plans and IRAs by individuals with income up to $32,500 and couples with income up to $65,000.
The amount of the match would phase out over the next $10,000 of income for individuals and $20,000 for couples. A $100 minimum credit would be provided if the phase-out rules would otherwise result in a credit amount between one cent and $100. These income limits and the cap on the eligible contribution amount would be indexed.