The recently signed SECURE 2.0 Act (SECURE 2.0) revised what was formally referred to as the Saver’s Credit for retirement plan, IRA account and ABLE account participants – who are considered low to moderate income taxpayers.
The Saver’s Credit allows for qualified individuals participating in a retirement plan or contributing to IRA to receive up to a 50% nonrefundable tax credit of a maximum contribution of $2,000 ($4,000 for if married filing jointly).
Effective for taxable years after December 31, 2026, the current Saver’s Credit will be replaced with the Saver’s Match, changing it from a credit paid in cash as part of a tax refund into a federal matching contribution that must be deposited into a taxpayer’s IRA or retirement plan. The match program is equal to 50% of IRA or retirement plan contributions up to $2,000 per individual (effectively $1,000 maximum).
Qualified participants will be able to choose which retirement account to receive the contribution, excluding Roth accounts. If a participant’s annual contributions are less than $100, the matching contribution will be applied against their tax liability, or if elected a participant can have their matching contribution applied against their tax return, like the current Saver’s Credit.
The match phases outfor single filers and married couples filing separately, and will be gradually reduced to zero if modified adjusted gross income (AGI) is between $20,500 to $35,500.
Joint filers will receive a reduced match if modified AGI is between $41,000 to $71,000, and head-of-household filers will have a reduction if modified AGI ranges between $30,750 to $53,250.
Eligibility requirements will be similar to those of the original Secure Act of 2019. Nonresident aliens will not qualify unless treated as a U.S. resident for the tax year. Taxpayers under 18 years of age, full-time students, and anyone claimed as a dependent on someone else’s tax return are not eligible, which is the same as today’s Saver’s Credit.
The early withdrawal penalties will apply for withdrawing the matching contribution from a retirement account prior to age 59 ½. This penalty can be avoided by depositing the withdrawn funds back into an eligible retirement account.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.