This benefit makes Secure 2.0 worth it

The inclusion of the new Saver’s Credit in the Secure 2.0 Act provides some balance to a piece of legislation that previously had primarily provided extensive goodies to high earners in the form of delayed required minimum distributions, provisions for catch-up contributions, and more.Despite my enthusiasm for the new credit, I do have some questions about the mechanics.

A saver’s credit designed to help lower and middle-income Americans save for retirement has been on the books for some time. Under current law, depending on adjusted gross income , a household can claim a credit for 50%, 20%, or 10% of the first $2,000 contributed during the year to a retirement account .

In theory, workers could gain a lot from the Saver’s Credit. A married couple with combined income of $43,500 who each contribute $2,000 to his/her retirement plan are eligible for a $1,000 credit each, for a total of $2,000. That is, they pay $2,000 less in federal income taxes than they would have otherwise.In practice, the Saver’s Credit does not work so smoothly. First, the credit is nonrefundable, which means that it can reduce the required tax repayment to zero but not below.

Here’s what I don’t quite understand, though. How is the government going to know where to send the match and how will it move the funds mechanically? How is the credit, which is a pretax contribution, going to mesh with the state auto-IRA programs, which are built on a Roth model? Perhaps these hurdles explain why the new Saver’s Credit does not take effect until 2027.

Since we recently put the Webb Telescope a million miles from Earth to explore the history of the universe, we should be able to figure this out in four years.

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