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The 5 Biggest Retirement-Related Tax Breaks

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Six retirement-related tax breaks cost the federal government about $250 billion in fiscal year 2021.

The retirement tax break “tax expenditures” total is on track to increase about 2.6% this year, to $257 billion.

Federal fiscal year 2022 will end Sept. 30.

For a look at the five biggest retirement-related tax expenditures in federal fiscal year 2021, and what the budget impact might be this year, see the gallery above.

Taxpayers v. the Budget Analysts

Tax breaks encourage your clients to save for retirement. They promote something good for society as a whole, by reducing the odds that older Americans will face severe poverty.

But, from the perspective of the budget analysts at the federal Office of Management and Budget, tax deductions and tax credits are a burden on the federal government’s finances.

Budget analysts classify the tax revenue lost as a result of the retirement savings incentives as tax expenditures.

OMB analysts post tax expenditure data every year, around the same time they release the White House budget proposals.

The exclusion for employer group health coverage contributions tops the chart: It accounted for $221 billion of the $1.4 trillion in federal income tax expenditures recorded in federal fiscal year 2021, which ended Sept. 30, 2021.

Six retirement-related tax breaks led to a total of $250 billion in tax expenditures in fiscal year 2021.

One, a tax exclusion for railroad worker retirement benefits program contributions, cost just $300 million.

Why It Matters

When members of Congress and other policymakers are hunting for ways to pay for new programs, they might start by looking at the tax expenditure rankings.

If a retirement provision leads to $1 billion or more in tax expenditures per year, that means any retirement planners, financial services companies and taxpayers who like that provision may have to fight hard to defend it against the revenue hunters.

(Image: Shutterstock)