The current federal saver's credit isn't always applicable for low-to-middle-income earners. That's why SECURE 2.0 is set to introduce changes. The saver's match is coming in 2027, giving those workers a bigger incentive to save.
The SECURE 2.0 Act is improving the road to retirement by introducing new provisions — and revising old ones to help Americans get retirement ready.
Under the current saver's credit, low-to-moderate income taxpayers participating in an employer-sponsored retirement plan or contributing to an individual retirement account (IRA) can receive up to a 50% non-refundable tax credit on their tax return up to $2,000 ($4,000 if married filing jointly) of an employee's contributions.
But beginning in 2027, the saver's credit will be replaced by the saver's match.
Out with the old, in with the new
Once the saver's match becomes effective, lower-income employees will be eligible to receive a federal matching contribution of up to $1,000 per year that would be deposited into their retirement savings account.
The matching contribution is 50% of an employee's contributions up to $2,000 but will phase out as income increases. The match is available to those earning up to $35,500 as an individual, $53,250 as a head of household or $71,000 as a married couple.
Saver's match eligibility includes any non-resident aliens, as long as they're treated as U.S. residents for the applicable tax year. Taxpayers younger than 18 years of age, full-time students and anyone claimed as a
dependent on another person's tax return are not eligible. And unlike the saver's credit, the saver's match is available to government workers.
Why the change?
The saver's credit as we know it is non-refundable, meaning low-to-moderate income earners who don't owe federal income tax cannot qualify. With the new saver's match, the eligibility pool will be expanded — those earners can benefit from this incentive to save for the next phase of life.
Expanding savings opportunities
According to the American Retirement Association, over 108 million Americans will be eligible for the match. By offering an employer-sponsored retirement plan, this new provision and many others can help your employees prepare for a brighter future.
Learn how to choose the right plan for your business. Connect with an ADP retirement specialist or call 1-800-432-401K today.
The SECURE 2.0 Act has 90+ provisions — need help keeping up? Here's your Complete Guide to the SECURE 2.0 Act of 2022