Of all the promising provisions in the SECURE 2.0 Act of 2022, one of the most expensive (as the federal government does math, anyway) is likely to be one of the most challenging to implement.
It’s not effective till 2027, so there’s still some time to figure it out—but I’m talking about the new Saver’s Match—a significantly retooled and expanded version of the Saver’s Credit (which is more properly referred to, at least by the IRS, as “Retirement Savings Contributions Credit”).
As with the precursor Saver’s Credit, the Saver’s Match is focused on increasing the savings of lower-income workers by—in addition to what an employer may match—making a matching contribution from the federal government. The match has a maximum value of $1,000 at a rate of $0.50 per dollar contributed by a worker, up to $2,000 annually.
The Employee Benefit Research Institute (EBRI) has estimated (from tabulations of tax filers with W-2 (wage) income) that 69 million had incomes eligible for the Saver’s Match. That would, of course, be dependent on how many of those contributed to a qualified retirement plan (employment-based or IRA), and there EBRI has estimated[i] that it might apply to 21.9 million individuals—compared with the 5.7% of taxpayers who claimed the Saver’s Credit in 2021.
Perhaps the most significant enhancement is that—unlike the Saver’s Credit—you don’t have to owe taxes in order to be eligible. Instead, the Saver’s Match is a refundable tax credit—and that alone is expected to dramatically increase the number of individuals taking advantage.
In addition, while the Saver’s Credit simply offset taxes owed (and thus put no new money in the worker’s hands), the Saver’s Match will actually be deposited to a qualified retirement account—employment-based or IRA. Now, there are some challenges ahead on that front—not the least of which involve the reporting and depositing of the match—but we’ll come back to that.
Finally, the Saver’s Match itself is more generous,[ii] both in amounts and eligible income brackets than the Saver’s Credit—which bodes well for more people taking advantage.
The Challenges
You don’t have to think long about the mechanics involved to find yourself saying “how in the world are ‘they’ going to do that?” Think about the reporting of the contributions—the federal government looking to confirm an account where the match can be deposited—the recordkeeping of this new match (not to mention tracking it to the point of distribution)—oh, and what changes might occur in location/retirement accounts between the point the contributions are reported and when the funds from the federal government might be available.
Beyond those obvious obstacles, a recent report from Pew outlines some legal limitations worth keeping in mind:
Roth exclusion. While Roth contributions qualify for the match, the match money cannot be deposited into a Roth IRA or plan account (it will be considered a pre-tax traditional contribution that will be taxed as ordinary income when withdrawn). While this might miss a lot of employment-based plan savers, those in state-run IRAs will need an alternative account for this deposit.
Employment-based plans don’t have to accept the contributions. While this might be good news for recordkeepers (or plan sponsors) who don’t want to mess with these deposits, it would require the individual to establish an account somewhere to accept it (likely an IRA).
Claw-back provision. The original Saver’s Credit had an offset for distributions[iii]—and so does the Saver’s Match. Eligible individuals who take early distributions from their account that exceed the amount of the saver’s matching contribution could be subject to additional tax, and considering these individuals are lower income, that might well be the case.
ABLE account savings are not eligible—though they were for the Saver’s Credit.
Those aren’t exactly “catches”—they are simply conditions regarding the Saver’s Match that are known and must be part of the planning and education. In fact, the biggest challenge of all may well be education. Surveys—notably from the Transamerica Institute—have routinely found that less than half of those eligible for the Saver’s Credit are aware of it. On the other hand, SECURE 2.0 requires[iv] the U.S. Department of the Treasury to promote the Saver’s Match.
And, assuming it all comes together, it could mean millions—perhaps billions—in new retirement savings. And that would be the biggest “catch” of all.
Fingers crossed.
[i] EBRI has also cautioned that this might be a conservative estimate, as it was based on W-2 compensation data only, and did not contemplate additions due to new long-term part-time eligibility rules, or contributions to state-run IRAs, not to mention the expanded incentives for new plan formation and the impact of automatic enrollment adoption by those plans, per SECURE 2.0 provisions.
[ii] Savers with modified AGIs below $20,500 ($41,000 for married filing jointly) will qualify for a 50% federal match on up to $2,000 in retirement savings—that is, a maximum match of $1,000. This income threshold will be adjusted for the cost of living for years after 2027. Those who earn up to $15,000 more than this threshold ($30,000 more for married couples filing jointly) will qualify for a reduced match.
[iii] The amount of any contribution eligible for the credit is reduced by distributions received by the taxpayer (or by the taxpayer’s spouse if the taxpayer files a joint return with the spouse) from any retirement plan or IRA to which eligible contributions can be made during the taxable year for which the credit is claimed, during the two taxable years prior to the year the credit is claimed, and during the period after the end of the taxable year for which the credit is claimed and prior to the due date for filing the taxpayer’s return for the year. Distributions that are rolled over to another retirement plan or IRA do not affect the credit.
[iv] It further requires that Treasury “shall, not later than July 1, 2026, provide a report to Congress summarizing anticipated promotion efforts,” including “a description of plans for the development and distribution of digital and print materials; the translation of such materials into the 10 most commonly spoken languages after English as determined by data from the U.S. Census Bureau, American Community Survey; and communicating the adverse consequences of early withdrawal from an applicable retirement savings vehicle to which a matching contribution has been paid.”
