“For middle-income people, the 10% incentive is pretty low,” Kent A. Mason, a partner at Davis & Harman LLP in Washington, said of the current saver credit. “It’s still a good incentive, but it’s not a great incentive.”
The tax credit currently in place decreases as the worker’s income increases. A couple who files a joint return with an adjusted gross income of less than $41,000, for example, is eligible for a tax credit equal to 50% of what they contribute to their retirement account, up to $2,000. Co-filers earning between $41,001 and $44,000 are eligible for a 20% credit and those earning between $44,001 and $68,000 are eligible for a 10% credit.
Under the proposed new tax credit, workers below a certain income threshold will get a direct 50% credit and those above that threshold will get a slightly reduced credit that will be phased out, Mr. Mason said.
Joint filers earning less than $48,000, for example, will receive a 50% credit and those earning between $48,000 and $83,000 will receive a credit that decreases very slowly as the filers income increases. If a couple is at $49,000, they lose a little credit, and if they’re at $50,000, they lose a little more, Mason said.
At $83,000 or more, the couple would get no credit.
“It was designed very carefully to make sure no one would be worse off, and a lot of people would be better off having that 50% credit,” Mr Mason said.
Chances are, credit will be even nicer. The Senate is likely to consider making the saver’s credit refundable, meaning non-taxable savers would also get the credit. In the Retirement Security and Savings Act reintroduced in the Senate in May 2021, the senses. Rob Portman, R-Ohio, and Ben Cardin, D-Md., have worked out provisions that would make the saver’s credit redeemable with money to be deposited in an individual retirement account or corporate plan designated by the declaring.
“I certainly wouldn’t say it’s a sure thing, but I think it’s going to be seriously considered,” Mason said of the Senate possibly making the saver’s credit refundable. This provision was not in the House bill.
However, many workers are unaware of the tax credit, even though it has been available since 2002. Less than half of all workers, 48%, are aware of the incentive, with even more knowledge low among workers most likely to benefit, according to a survey of 5,493 workers conducted for the Transamerica Institute between Oct. 28 and Dec. 10.