If at first you don’t succeed, try, try again.
That’s what Senate Finance Committee Ranking Member Ron Wyden (D-OR) and six fellow Democratic colleagues are doing by reintroducing an already twice-introduced bill that seeks to give eligible workers a credit to their 401k plan or IRA.
The Encouraging Americans to Save Act (EASA) would enhance incentives to save by restructuring the existing, nonrefundable saver’s credit into a refundable, government matching contribution of up to $1,000 a year for middle- and moderate-income workers who save through 401k or IRAs.
What’s new this time around is the legislation also includes a COVID-19 recovery bonus credit that provides up to $5,000 in additional government matching contributions for the first $10,000 saved during a five-year period beginning in 2022.
“Low- and middle-income workers, who are far less likely to have adequate retirement savings, need help,” Wyden said in a July 22 statement. “Democrats delivered critical relief to workers and families struggling to make ends meet during the pandemic, and now these folks need help in getting back on their feet and securing their financial future. Addressing our retirement crisis demands a comprehensive approach, and my bill is an important piece of the puzzle that would deliver meaningful federal retirement contributions year after year.”
Under current law, a couple earning $39,500 or less can receive a tax credit of 50% of the amount, up to $2,000, saved in retirement accounts. The credit then phases out, ending completely at income of $66,000 per couple or $33,000 per individual.
Wyden’s legislation would enhance the saver’s credit by making the full 50% credit rate available to couples earning up to $65,000 per year ($32,500 for single taxpayers, up from $19,750 currently) and would require the credit be directly contributed into the saver’s retirement plan or IRA.
The refundable credit would also be available for contributions made to ABLE Accounts, and would be deposited in those accounts.
EASA was introduced just in time to be included in a Wednesday (July 28) hearing by the Senate Finance Committee on how Congress can enhance retirement savings incentives. American Retirement Association CEO and Executive Director of NAPA Brian Graff is scheduled to testify at the hearing.
The bill is cosponsored by Senators Michael F. Bennet (D-CO), Bob Casey (D-PA), Dick Durbin (D-IL), Amy Klobuchar (D-MN), Bob Menendez (D-NJ), and Patty Murray (D-WA).
Wyden first introduced the bill in Nov. 2018 and again in Dec. 2020, but it died without a vote both times. Meanwhile, a House version was reintroduced by Rep. Judy Chu (D-CA) on April 30, 2021 after originally being introduced June 30, 2020.
Similar saver’s credit provisions to boost the income limit for individuals claiming the credit and allowing it to be refundable into a retirement account are included the Senate’s version of the much-hyped and bipartisan “SECURE 2.0” package, called the Retirement Security and Savings Act. Any differences in the saver’s credit provision between this bill and Wyden’s bill may be worked out in mark-up and could well end up being part of the SECURE 2.0 package, which has a chance at making it to President Biden’s desk before the end of the year.
A recent Nationwide survey found 93% of financial professionals are in favor of the proposed Saver’s Credit changes.
Full text of the Wyden bill is available here, and a summary is available here.