The Internal Revenue Service (IRS) and the Treasury are gearing up to roll out a new program intended to boost retirement savings among low- and moderate-income Americans by offering taxpayer-funded matching contributions of up to $1,000 per year directly into their retirement accounts.
The Saver’s Match initiative, introduced as part of the Secure 2.0 Act, will replace the current Saver’s Credit system. Unlike the nonrefundable Saver’s Credit, which merely reduces tax liability, the new Saver’s Match offers up to $1,000 in direct contributions to an individual’s retirement account.
The IRS expects this shift to deliver greater benefits, particularly for people with little or no tax liability, by enhancing their retirement savings rather than just lowering their taxes owed.
To ensure the successful implementation of the Saver’s Match program, which is set to launch in 2027, the IRS and Treasury are soliciting public input on a range of topics, including how best to simplify the process for claiming the matching contribution and ensuring that retirement plans and individual retirement accounts (IRAs) can easily accept these contributions.
According to an IRS press release issued on September 5th, the agencies emphasized that the Saver’s Match initiative represents a new approach to promoting retirement savings and is intended to significantly improve long-term financial security for millions of low- to moderate-income Americans. To ensure this goal is met, public input is essential.
The IRS and Treasury are focused on determining the most effective way to establish eligibility and distribute contributions under the Saver’s Match program. They are also working to streamline the process for taxpayers to claim the matching contribution, particularly those who may not typically file federal tax returns due to low income levels.
In addition to evaluating how to ensure that retirement plans, including IRAs and employer-sponsored 401(k)s, can easily accept these taxpayer-funded contributions, the agencies are also considering options for incentivizing more plans to participate in the program. This would help extend its reach and benefits to a wider group of eligible individuals.
Eligibility for the Saver’s Match will closely mirror the existing Saver’s Credit system, with income-based phase-outs. For single filers, the match will begin to phase out at $20,500 and will no longer be available for individuals earning more than $35,500. For married couples filing jointly, the phase-out begins at $41,000, with a maximum income limit of $71,000. These income thresholds will be adjusted annually for inflation.
One significant difference from the current Saver’s Credit is the exclusion of certain “nonresident aliens” from the Saver’s Match program. While the Saver’s Credit does not impose this restriction, the Saver’s Match will, and the IRS is seeking public input on how to best implement and clarify this limitation.
Another potential issue arises for taxpayers who contribute to Roth retirement accounts, as contributions to these accounts qualify for the match. However, the actual Saver’s Match funds must be deposited into a traditional, pre-tax account, which could complicate retirement planning for individuals who prefer Roth accounts due to their tax-free withdrawals in retirement.
The IRS is also looking into how to address early withdrawal penalties for participants who may need to access their retirement savings for emergencies.
To gather input from various stakeholders, including low to moderate-income taxpayers and IRA custodians, trustees, and retirement plan administrators, the IRS has extended the comment period until November 4th. During this time, stakeholders are encouraged to share their perspectives on key areas such as eligibility criteria, the process for claiming the matching contribution, and how retirement plans can be encouraged to accept these contributions.
The detailed questions that the agencies are asking include what steps could be taken to prevent the Saver’s Match payout to ineligible accounts and how to streamline the process for eligible individuals to claim the matching contribution. By seeking input from a broad range of stakeholders, the IRS aims to ensure that the Saver’s Match program achieves its full potential in improving retirement savings and financial security for millions of low- to moderate-income Americans.
