Forget RESA, it’s all about EASA.
Fresh from reclaiming their congressional prize, Democrats introduced the Encouraging Americans to Save Act, which would replace the current saver’s tax credit with a federal 401k-style match for middle- and low-income workers.
It wouldn’t matter if they save at work through an employer-sponsored plan or on their own through an IRA.
Importantly, Section 3 of the bill would reestablish the Obama Administration’s MyRA program, which the Trump Administration previously discontinued as part of a push for more government efficiency.
The Treasury Department would now be authorized to issue rules coordinating the establishment of MyRA accounts in connection with state and local government laws that enroll workers in retirement savings accounts.
“Significantly, the program would offer matching contributions for the first time to millions of individuals not covered by an employer-sponsored retirement plan, including those who save through an IRA under a state or local government program—such as OregonSaves—that automatically enrolls workers who do not have access to an employer-sponsored retirement plan,” according to the proposed legislation. “The government match would both encourage saving and help middle- and low-income earners build assets by providing an immediate, meaningful return on their personal contributions.”
Dems claim the match would benefit everyone within the target income group who saves in an eligible account regardless of whether the taxpayer owes income taxes.
“Because the match would be deposited directly into the taxpayers’ account instead of being sent to the individual as a tax refund, the money would be saved rather than spent.”
The saver’s credit would be replaced with a 50 percent government match on contributions of up to $1,000 per year made to 401k-type plans and IRAs by individuals with income up to $32,500 and couples with income up to $65,000.
- The amount of the match would phase out over the next $10,000 of income for individuals and $20,000 for couples.
- These income limits and the cap on the eligible contribution amount would be indexed for inflation.
- The match would be claimed on the individual 1040 or 1040 EZ income tax form and deposited directly into a worker’s IRA, 401k, or similar account using the account number provided by the worker.
If the individual provides an erroneous account number or none at all, the match would be deposited into a MyRA account. Amounts saved in MyRA accounts are invested in Treasury bonds. EASA would reestablish this program.
Announced with great fanfare by President Obama in his 2014 State of the Union address, the Treasury Department developed the framework for the government-sponsored IRA program over the next 10 months, implementing the plan in November 2015.
But only about 20,000 people signed up for it by the end of 2016.
As part of the new administration’s effort “to assess existing programs and promote a more effective government,” the Treasury Department announced in the summer of 2017 that it would wind down the MyRA program after what it called “a thorough review by Treasury that found it not to be cost effective.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
