- In the past, and for the next few years, the Internal Revenue Code provides for a nonrefundable tax credit for low-paid individuals who make plan, IRA or ABLE contributions. Unfortunately, that credit was seldom claimed on tax returns, possibly because of a lack of awareness among low-paid taxpayers.
- However, under SECURE Act 2.0—beginning in 2027—the tax credit will become refundable, but not to the individuals. Instead, the Federal government will deposit matching contributions into the IRAs and plan accounts of those individuals.
- The administrative complexity of depositing the Federal matches into those IRAs and plan accounts is significant. Nonetheless, it is an effort by Congress to help the lowest paid workers in the country–or at least to help those who make enough money to contribute into their IRAs and plans.
- However, for workers who don’t earn enough to have disposable income to put into their IRAs or plans, this change doesn’t address their circumstances.
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article discusses the provision that is, in my opinion, the most unique in SECURE 2.0. It is one of the mandatory provisions, but it doesn’t become effective until 2027, probably because of the considerable changes needed to implement and administer the provision. Section 103 of SECURE 2.0 creates a “Saver’s Match” for low-income workers to be funded by the Federal government.