Enhancement of Savers Credit Act

Source: AARP Advocacy

What's at Stake?
We are currently experiencing a crisis of retirement insecurity. The national-savings rate has plummeted to the lowest level since the Great Depression. The Government Accountability Office is projecting that 37 percent of all workers will retire with no planned savings. With Social Security only replacing about 40 percent of the average worker’s pre-retirement income, lawmakers must do more to encourage saving for the future.

Although federal tax policy includes numerous incentives to help Americans save for retirement, most of the tax incentives designed to encourage retirement savings are skewed to benefit wealthier workers in the higher tax brackets. It is critical that we look for new ways to help people with low-to-moderate incomes to save for retirement.
 
One promising way to provide low-to-moderate-income families incentives to save is the saver's tax credit. Unfortunately, millions of workers either cannot use the credit because their incomes are too low, or they are not eligible for the credit because their incomes are just above the eligibility thresholds. In order to address the savings crisis in this country, we need to expand the saver’s tax credit to help Americans who need it most. The simple fact is that we can’t afford not to.

Legislative Summary
President Obama has proposed an expansion of the saver’s tax credit, and lawmakers will introduce a proposal to do so in the 111th Congress. The bill would provide a direct-savings match for low- and moderate-income workers who contribute to retirement-savings plans and have some federal tax liability, but who are not currently eligible for the credit. The legislation would also establish a flat 50-percent credit up to a cap, so that all eligible savers would receive equitable tax treatment, and the bill would require the credit to be deposited directly into a qualified account to encourage savings.

AARP Position
AARP supports extending the saver’s tax credit, because it would expand the value of the credit and the number of workers who are eligible for it—thus providing a greater opportunity for low- and moderate-income workers to save and to help themselves. Everyone needs to save for his or her retirement, and tax incentives are best targeted to those who need them most. It is especially hard for people with limited incomes to save for their retirement, and an expansion of the saver's credit will give these workers a greater opportunity to help themselves.

Legislative Timeline
The president has proposed an expansion of the saver's tax credit, and Congress may enact this proposal in 2009 or 2010.