New Spending Bill Makes It Easier for Americans to Save for Retirement

Student debtors get matching contributions

Some employers provide a matching contribution on the amount you save in your 401(k) or workplace retirement account — they might match every dollar you contribute, for example, up to 4 percent of your salary. But people with student loans may delay saving for retirement while they focus on whittling down their debt, which means they stand to lose years of free money from their employer.

Starting in 2024, student loan payments would count as retirement contributions in 401(k), 403(b) and SIMPLE I.R.A.’s for the purposes of qualifying for a matching contribution in a workplace retirement plan. The same goes for governmental employers who make matching contributions in 457(b) and related plans.

Saver’s match

Workers with low- to middle-incomes of up to $71,000 will receive a greater benefit — in the form of a matching contribution from the government — when they save inside an I.R.A. and workplace retirement plan like 401(k)s.

In its current form, the so-called Saver’s Credit allows individuals to receive up to 50 percent of their retirement savings contribution, up to $2,000, in the form of a nonrefundable tax credit. That means they only receive the money back, up to $1,000, if they owe at least that much in taxes. If they don’t owe any taxes, they don’t receive the benefit.

But starting in 2027, instead of the nonrefundable tax credit — which is paid out in cash as part of a tax refund — taxpayers will receive a federal matching contribution that must be deposited into their I.R.A. or retirement plan. It cannot be withdrawn without penalty.

The match phases out based on your income: for taxpayers filing a joint tax return, it phases out between $41,000 and $71,000; for single taxpayers, it’s $20,500 to $35,500 and head of household, $30,750 to $53,250.

Article source: https://www.nytimes.com/2022/12/20/your-money/spending-bill-401k-retirement-savings.html