President Obama is proposing several measures to help older Americans save for retirement, care for relatives and help their kids pay for college.
“I know the anxieties that are out there right now,” Obama said Wednesday night in his State of the Union address to Congress. “That’s why we’re nearly doubling the child-care tax credit, and making it easier to save for retirement by giving every worker access to a retirement account and expanding the tax credit for those who start a nest egg.” He also proposed large funding increases for federal programs that directly help family caregivers.
Most of Obama’s proposals must be approved by Congress to go into effect. But several of them have broad backing and are already included in bills that have been introduced. “I think they are going to pass,” says Carol Wayman, director of federal policy for the Corporation for Enterprise Development, a nonprofit think tank and advocacy organization. “This is a high priority.”
Here are the details of the proposals, many of which emerged from a yearlong series of meetings held by the Middle Class Task Force created by Obama and chaired by Vice President Joe Biden.
This would compel employers who do not have a retirement plan to automatically enroll each employee in direct-deposit individual retirement account (IRA) plans, unless the employee opted out. It would offer new tax credits to help employers pay administrative costs.
The retirement plans would be the same as IRAs or Roth IRAs that individuals currently can open for themselves. This is an idea that has been kicking around Washington at least since 2007, when a similar plan was introduced in bills by Sen. Jeff Bingaman, D-N.M., and Rep. Richard Neal, D-Mass.
Current law offers low-income taxpayers a tax credit ranging from 10 to 50 percent of the money they put in a retirement plan, whether it’s their own or their employer’s plan. The maximum credit is $1,000 for unmarried filers and $2,000 for married filers. But it’s a complicated credit to calculate, tops out for families earning $55,500, and is not refundable—you can’t take advantage of the credit unless you owe federal income taxes.
For 2009, only people earning less than $16,500 ($33,000 for couples) qualified for the 50 percent credit. That meant it was difficult for people whose incomes were low enough to qualify to actually afford the contribution needed to snag the full credit.
The new proposal would match 50 percent of the taxpayer’s first $500 in retirement contributions ($1,000 for joint filers), and deposit that amount directly into the taxpayer’s retirement account. The credit would also be refundable, and eligibility would be extended to taxpayers earning up to $65,000. Families earning up to $85,000 could claim a partial credit.
While the maximum amount of the credit is lower, the proposed formula would allow many more people to take the credit and get the full 50 percent match.
“This will increase the net worth and retirement security of millions of low- to moderate-income working American families,” says Wayman. A similar bill has already been introduced in the House by Rep. Earl Pomeroy, D-N.D.