IRS Seek Feedback On New Savings Plan Funded By Treasury

The Internal Revenue Service is seeking public feedback regarding a novel way of saving for retirement.getty
The IRS is soliciting comments regarding a novel way of saving for retirement. Called the supercharged saver’s match, this plan builds upon existing saver’s credit to offer “an important opportunity” in improving long-term financial security for millions of low and moderate-income Americans. Under this plan, beginning in 2027 qualifying individuals contributing up to $2,000 annually into certain retirement plans can receive up to $1,000 as saver’s match contributions each year from the Treasury as part of an enhanced match contribution program.

Saver’s Match is made possible thanks to the SECURE 2.0 Act of 2022.

Background
The SECURE 2.0 Act was the follow-up legislation of 2019’s SECURE Act on retirement-heavy legislation. President Biden signed it into law as part of Consolidated Appropriations Act 2023 on December 29, 2022 and it made several amendments to current laws such as:

Automatic Enrollment. Employers establishing new retirement plans after December 29, 2022, beginning 2025 will be required to automatically enroll eligible employees into their plans unless there are exceptions such as small companies with 10 employees or fewer, new companies, churches or government agencies – however employees don’t have to participate and may choose whether or not to take part.
Roth Account Matches. Employers can amend existing plans so that employees receive Roth matching contributions under pre-tax accounts as opposed to just pre-tax accounts for matching contributions, unlike before when matching was only allowed on pre-tax bases.
SECURE 2.0’s RMDs. SECURE 2.0 made several modifications to RMDs (required minimum distributions), some of which proved confusing; therefore the IRS has provided clarification. Last year’s Notice 2022-53 noted that final RMD regulations will take effect no earlier than the 2023 distribution calendar year; 2023-54 provided an extra year of relief by exempting missed 2023 RMD payments made after their required beginning dates by non-eligible designated beneficiaries of deceased IRA owners who died between 2020 or 2021 after starting date; finally Notice 2024-35 added yet another year of relief (you can read about more here).
Qualified Charitable Distributions. Prior to the SECURE Act and SECURE 2.0, individuals aged 70 1/2 or over could donate $100,000 annually from their IRA directly to qualifying charities – countable towards fulfilling required RMD requirements – from their IRA account. From 2023, however, that figure will increase and now index for inflation as well. In addition, taxpayers who are 70 1/2 can now elect one-time payments of up to $50,000 (indexed for inflation) directly into split interest entities like charitable remainder unitrusts from their IRA accounts.
As of this year (2024), any funds unused within your 529 plan can now be converted to Roth IRA without incurring penalties or taxes.
Student Loans. Additionally, Section 110 of the SECURE 2.0 Act permits employers to make matching contributions on behalf of employees’ qualified student loan payments (QSLPs) made under section 401(k), 403(b), SIMPLE IRA plans or even government 457(b).

Under current law, the saver’s credit offers nonrefundable tax credits worth up to $1,000 ($2,000 for joint filers) for mid and low income taxpayers who contribute to retirement accounts.

Eligible taxpayers include people age 18 or over who are non-full time students and not claimed as dependents by anyone on their tax return. There are income limitations – in 2024 your adjusted gross income (AGI) cannot surpass $38,250 ($76,550 if filing jointly or $57,375 if filing as head of household).
Beginning January 1 of 2027 (sooner), SECURE 2.0 will introduce saver’s match contributions as the replacement to saver’s credits, with eligibility determined based on income levels; eligible taxpayers include anyone aged 18 years or over and not claimed as dependents by someone else on their tax return.
Section 6433 of the Tax Code allows eligible individuals to claim up to an annual Saver’s Match contribution of $1,000 per person (up to $2,000 for married filing jointly taxpayers), determined by multiplying retirement account contributions of up to $2,000 at an income-dependent rate.
Saver’s match contributions are subject to an income phaseout for single taxpayers with AGI below $20,500 (phasing out entirely at $35,500), while married taxpayers filing jointly may phaseout entirely once AGI exceeds $41,000 – all amounts have been adjusted for inflation.
Qualified retirement savings contributions may include contributions made to traditional and Roth individual retirement accounts and annuities (IRAs), elective deferrals, voluntary after-tax contributions to section 401(k), 403(b), 457(b) plans as well as SIMPLE IRA contributions made toward Simplified Employee Pension (SEP) plans or contributions made towards section 501(c)(18) plans that do not count against contribution limits of retirement plans/IRAs; any such payments generally will not count towards those limits;
Contributions up to $2,000 may be contributed toward a tax credit indexed for inflation; maximum match rate on contributions at 50% — that is $1,000 max– is set as match cap on match rates.
Under section 6433(e)(2), any match amount awarded should be directly deposited into an eligible taxpayer’s retirement account (such as traditional (non-Roth) IRAs or sections 401(k), 403(b), or 457(b). For amounts under $100 however, eligible taxpayers have the option of treating it instead as a refundable income tax credit contribution instead. Inquire for further comment here (or send in feedback here).
As can be imagined, this new arrangement presents many questions for consideration by the IRS and has requested public commentary regarding various matters concerning it – for instance:

What practical considerations should the IRS keep in mind when providing guidance about eligibility? How should eligible individuals claim saver’s match contributions from the IRS?
Should eligible individuals needing to claim saver’s match contributions file Form 1040 or use an independent form?
What should the default election be if an eligible individual claims a saver’s match contribution amount of less than $100 but fails to select an applicable retirement savings vehicle in which to place it?
How should eligible individuals select an applicable retirement savings vehicle as the vehicle to receive Saver’s Match contributions? What steps could be taken to ensure the contributions are correctly made towards an individual’s applicable savings vehicle?
What should the IRS keep in mind regarding incorrect saver’s match contributions?
What information must be available in order for eligible individuals to ascertain whether an IRA or retirement plan accepts saver’s match contributions, and where should that information be stored?

Notice 2024-65 contains answers and additional material related to all your inquiries and needs.
The IRS invites comments from all interested stakeholders – low to moderate-income taxpayers, volunteer and for-profit tax preparers, organizations that serve and advise low to moderate-income taxpayers, IRA custodians/trustees/administrators/recordkeepers and plan sponsors alike.
Written comments should be submitted no later than November 4, 2024 either online at regulations.gov or via mailing to Internal Revenue Service at P.O. Box 7604, Ben Franklin Station in Washington, DC 20044 by November 4th 2024. Forbe’s reports “Roll Your 529 Plan into A Roth IRA Beginning In 2024 ” and Kelly Phillips Erb’s article.
Forbes Issues Advice Regarding Student Loan Payback PlansAccording to Kelly Phillips Erb from ForbesIRS Issues Guidance For Matches Based On Student Loan PaymentsBy Kelly Phillips Erb