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5 Ways to Fix the Saver’s Credit

At a recent policy forum sponsored by the Employee Benefit Research Institute, Catherine Collinson, President of the Transamerica Center for Retirement Studies, outlined five ways to “fix” the current Saver’s Credit.

The credit helps offset part of the first $2,000 ($4,000, for joint filers) workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. That said, just 24% of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 15th Annual Transamerica Retirement Survey. Here are some ways Collinson says it could be made better.

1. Update the messaging and positioning.

First, and perhaps foremost, she recommended updating the messaging and positioning of the Saver’s Credit, or its official name, the “Retirement Savings Contributions Credit.” Collinson said it would be better to avoid use of the reference “low- to moderate income” tax filers. She noted that many individuals who are potentially eligible may not self-identify as being in that category, and employers may be reluctant to promote it as such. Instead, she suggested referring to “eligible tax filers.”

2. Implement an ongoing educational campaign to promote the Saver’s Credit and how to claim it.

As part of that, highlight related opportunities to facilitate savings including:

  • the new myRA;

  • the ability to deposit a portion of one’s tax refund into an IRA or myRA; and

  • the IRS’ Free File program.

3. Encourage employers to promote the Saver’s Credit among their employees.

4. Add the ability to claim the credit on Form 1040EZ (today you have to file the 1040 long form, as well as a Form 8880).

5. Facilitate the depositing of the amount that a tax filer receives from the Saver’s Credit into a retirement account.

Collinson also offered suggestions on how to expand and enhance the Saver’s Credit, including:

  • Make the Saver’s Credit refundable so that all savers who meet the income and eligibility requirements can fully benefit (as opposed to only those who file/pay taxes).

  • Simplify and/or eliminate the non-income related eligibility requirements.

  • Increase the income limits for eligibility.

  • Simplify and collapse the current three rates for credit within the income requirements into a single credit rate of 50%.