Saver’s Credit Legislation Would Raise Income Ceiling, Funnel Savings to Retirement Accounts

May 2009

Rep. Earl Pomeroy (D-ND) has introduced The Savings for American Families’ Future Act of 2009 to expand the current Saver’s Credit law. This legislation largely tracks the Saver’s Credit expansion proposed by the Obama Administration in its FY2010 budget.

The bill would change the current tax credit that encourages low- and moderate-income families and individuals to save for retirement. Currently, taxpayers who contribute to an individual retirement account (IRA) or to an employer-sponsored defined contribution plan can receive a non-refundable tax credit of up to $1,000. This credit is in addition to the tax deduction for contributing to a traditional IRA or to an employer-sponsored retirement plan.

The proposed legislation would:

• Make the Saver’s Credit refundable and require that the credit be paid only into the taxpayer’s retirement accounts.
• Expand the number of families and individuals who would be able to use the full Saver’s Credit of 50 percent by raising the existing income limits for the full credit. The new limits would be set at adjusted gross incomes of $32,500 for individuals and $65,000 for couples. It would also create a phase out range for those earning somewhat more than those limits.
• Establish the maximum amount of an employee’s contribution that is eligible for the Saver’s Credit at $500 for an individual and $1,000 for a couple. These contribution limits would increase by $100 and $200 respectively each year until 2020. After that time the limits would increase with inflation.

Chances for the bill’s passage hinge in part on how much it will be estimated to cost and whether those costs have to be offset. The Obama Administration indicated in its budget document that automatic IRA enrollment and the Saver’s Credit proposals combined would result in a loss of revenue of $55 billion over ten years.