Personal Finance

‘Secure 2.0’ provides ‘match’ to retirement savers with lower income

A new incentive for low- and moderate-income individuals to save for their post-working years could be on its way.

Under a provision included in a legislative proposal known as “Secure 2.0” — which is included in an omnibus appropriations bill that cleared the Senate on Thursday and awaited a House vote — a retirement “saver’s match” would be implemented, essentially changing how an existing tax credit works.

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Should the bill pass, people with income under set limits who contribute to a qualified retirement account — i.e., a 401(k) plan — would receive a limited federal “matching” contribution to their nest egg starting in 2027. That amount would be a maximum 50% of up to $2,000 in contributions to a qualifying account (so a maximum $1,000 match per individual).

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The match would be phased out (reduced) at income of $41,000 to $71,000 for married couples filing a joint tax return. For single taxpayers, the phase-out range would be $20,500 to $35,500, and for heads of household filers, $30,750 to $53,250.

The current credit isn’t always useful for taxpayers

The move to allow a federal matching contribution is being sought because the current tax credit is nonrefundable, meaning that if you owe no federal income tax, you don’t get the credit.

“The major drawback with the version in law today is that it’s not refundable,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

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“So individuals who have no federal income tax liability, which is most low- and moderate-income earners, get no benefit from that credit,” Akabas said. “This reform is an attempt to make sure those people receive an incentive and a benefit for putting away money for their future.”

The new saver’s match also would be available to some workers who aren’t permitted to use the current tax credit, such as some government employees (i.e., school teachers) and gig workers, said Kristen Carlisle, general manager of Betterment at Work.

The match would be “a direct, substantial way to increase the retirement savings of lower and middle-income workers, and incentivize good retirement planning habits,” Carlisle said.

More than 108 million people would be eligible for the saver’s match, according to the American Retirement Association.

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