Hot on the heels of the SECURE Act 2.0, legislation has been reintroduced, as a bill, to help lower and middle income families to save for retirement.
The bill entitled EASA or the Encouraging Americans to Save Act, is proposed by six democrats including Senate Finance Committee chairman Ron Wyden from Oregon.
It aims to reform and expand the nonrefundable saver’s tax credit by creating a federal matching contribution for the majority of everyday working Americans. Specifically those earning a modest or low income, and who already contribute to something like a 401(k) or IRA.
According to the Senate Committee on Finance, the proposed legislation would replace the existing saver’s credit with:
‘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. As under current law, the maximum credit is $1,000 per individual.’
Senate Committee on Finance
The match on contributions will be made to plans including 401(k)s, 403(b)s tax-deferred annuity, section 457(b) government plans and IRAs for taxpayers earning up to $32,000 or $65,000 for couples. This would phase out over $10,000 in earnings, $20,000 for couples.
In addition to this there is a Covid-19 ‘recovery bonus’ of up to $5,000 in matching contributions for a plan participant’s first $10,000 saved between 2022 and 2029
The intended impact of all this, is to help low and middle income households who, for the most part, don’t benefit from the existing saver’s credit; due to the fact that they don’t have tax liability.
According to the Senate Finance Committee:
The reformed credit would be fully refundable, regardless of the size of the saver’s income tax liability. Because the government match would be deposited directly into the taxpayer’s account instead of being sent to the individual as a tax refund, the money would be saved rather than spent.
Senate Committee on Finance
After such a turbulent period, anything that can ease the transition back to normal life, for ordinary Americans will be a welcome change from the financial instability brought about by the pandemic, that left so many Americans troubled and uncertain about their retirement planning.
