Beginning in 2027, the Saver's Match will replace the Saver's Credit as part of a federal initiative under the 2022 Secure 2.0 Act. This new program promises to deposit up to $1,000 annually directly into taxpayers' retirement accounts, aiming to enhance retirement savings for millions of Americans. According to projections, eligible individuals could see an increase in their retirement wealth by as much as 12%.
The Saver's Match offers a significant incentive by aligning with behavioral finance principles. It encourages individuals to save more for retirement, providing a government match proportional to their contributions and income. This program aims to address the shortcomings of the current Saver's Credit, which has not significantly benefited low-income savers. In 2021, only 5.7% of taxpayers claimed this credit.
Under the new program, taxpayers will qualify regardless of their tax liability. Single taxpayers with an adjusted gross income of $20,000 or joint filers earning up to $40,000 can receive a 50% match on contributions up to $2,000 to a qualified retirement account, resulting in a maximum match of $1,000 per year. Additionally, those with incomes between $20,000 and $35,000 will qualify for reduced contributions.
The Employee Benefits Research Institute estimates that approximately 21.9 million Americans could qualify for this contribution. The Saver's Match promises to be more inclusive and beneficial than its predecessor, especially for those under certain income thresholds.
A Morningstar retirement outcome model suggests that these changes could boost eligible Americans' retirement wealth by 12%. This potential increase highlights the power of compounding savings over time.
"Seemingly small amounts of money may not feel like they'll make a huge difference. But they do when they can compound and add up over time," said Spencer Look.
The program also illustrates the long-term benefits of increased savings. For example, a 22-year-old investor contributing $2,000 annually to a retirement account with an annualized 8% return could accumulate approximately $835,000 by age 67. If they increase their contribution to $3,000 per year, their savings could grow to $1.25 million by the time they retire.
"Even if people only qualify for a partial match, this is free money to get from the government for retirement," added Spencer Look.
The Saver's Match is designed to make retirement savings more accessible and rewarding for a broader range of taxpayers. By directly contributing to retirement accounts, the program aims to ensure more Americans can enjoy financial security in their later years.