In an ongoing effort to build Americans’ retirement security, senators on Thursday introduced the “Encouraging Americans to Save Act” to promote contributions to retirement accounts.
The proposal, if passed, would turn the current non-refundable savings into a repayable credit equivalent to a retirement contribution of up to $1,000 per year for those with 401(k)-type plans and individual retirement accounts. Senator Ron Wyden, an Oregon Democrat and chairman of the Senate Finance Committee, introduced the bill along with six of his colleagues.
The proposal technically states that the credit would be 50% of contributions up to $2,000, meaning that an employee who contributes $2,000 to her 401(k) would receive a $1,000 credit. A person who sets aside $1,000 in their IRA would receive a $500 credit. The credit would go into the retirement savings account.
There are income restrictions to the credit. Singles are not allowed to earn more than $32,500 to get the full credit, and couples applying jointly must have income up to $65,000, according to the Senate. The contest amount would be phased out over the next $10,000 for eligible individuals and $20,000 for eligible couples, and the limits would be adjusted for inflation in the future.
Currently, the pension saver credit is as much as 50% of a person’s contribution to a retirement account. For singles, their adjusted gross income cannot exceed $19,750; for heads of household, no more than $29,625; and for those who are married, file jointly, no more than $39,500. Above these limits, the credit can also be reduced. The existing credit is non-refundable, meaning the credit can lower a person’s tax bill, but not a refund.