Posts Tagged "retirement saving"
August 25, 2022
Oregon’s Retirement IRA is Making Progress
Left to their own devices, Americans who lack a retirement savings plan at work do not usually take the initiative to set up an IRA and save on their own.
Oregon lawmakers decided to do something about that, and a new study finds that their approach of requiring employers without a plan to automatically enroll their workers in a state-sponsored IRA is reaching the right people.
Nationwide, lower-income workers are much less likely to have a retirement plan, and the typical employee enrolled in the program, OregonSaves, earns only $22,600. They also tend to work in high-turnover industries like food service and healthcare where constant job changes make it difficult to save consistently. When an Oregon worker finds another job in the state, he can take his IRA with him to the next employer.
Private-sector 401(k)s with auto-enrollment match some of the workers’ contributions and have nearly universal participation. In OregonSaves, the share of people with positive account balances in their IRAs, which don’t have a match, is lower.
But these are the types of workers who don’t usually save, and the vast majority told their employers they had not been saving prior to being enrolled in OregonSaves. The program “has meaningfully increased employee savings,” concluded a new study funded by the U.S. Social Security Administration.
At the end of May, the average balance in about 114,000 IRA accounts was $1,324. The employees have saved a total of $151 million.
Auto-enrollment gets these low-paid workers into the IRA. But an important reason they choose not to opt out – as they are permitted to do at any time – is that they’ve probably known they should be saving for retirement and OregonSaves made it easier. …
May 17, 2022
Enhancement to Savers Tax Credit is Minor
The Savers Tax Credit sounds great on paper. Low-income people get a federal tax credit for saving money for retirement.
But this part of the tax code always seems to disappoint.
The House recently overwhelmingly passed a bill, the Secure Act 2.0, that – along with numerous other retirement provisions – makes the savers credit more generous for some low-income workers.
Under current law, taxpayers can get one of three credits – 10 percent, 20 percent, or 50 percent of the amount they save in a 401(k). The Secure Act, which is now headed for the Senate, would somewhat increase the top income levels for the 50 percent credit – from $20,500 currently to $24,000 for single taxpayers and from $41,000 to $48,000 for married couples. The dollar value of the caps on their credits would remain at the current $1,000 and $2,000, respectively.
The House bill would also eliminate the 10 percent and 20 percent credits for higher-income workers and begin phasing out the dollar caps once taxpayers exceed the $24,000 and $48,000 income levels.
The proposed tweak to the tax structure “is not a dramatic change to who gets the credit,” said Samantha Jacoby, the senior tax legal analyst for the Center on Budget and Policy Priorities.
The House also failed to fix the fundamental flaw in the savers credit: it is non-refundable. This means workers who don’t owe any taxes don’t qualify. Without refundability, Jacoby and Chuck Marr write in a recent report, the House bill “ignores a critical reason why so few people with low and moderate incomes claim the credit.”
Disappointment with the tweaks to the savers credit is apparent in the context of the entire bill, which gives much more to higher-income people. For example, the House increased the age that taxation of 401(k) withdrawals kicks in from 72 to 75. Some retirees with modest incomes will tap their savings long before that and won’t benefit from the provision.
“Overwhelmingly, the people who will benefit from this bill are the people who are higher income and already have secure retirements,” Jacoby said.
Another barrier to use of the savers credit is a lack of awareness that it exists. The share of tax filers who claim the credit has increased in the past 20 years but still hasn’t reached 10 percent, according to a report by Transamerica Institute. …Learn More