The president said in his State of the Union address that this program "guarantees a decent return with no risk of losing what you put in." Yet just last year, the guaranteed fund within the government's Thrift Savings Plan earned about 1.5 percent, which is hardly the type of return that will help a person grow his or her retirement plan.
Besides, the U.S. government already has a program in place that pays the working poor to put money into retirement accounts. Depending upon income, taxpayers match 50 cents on the dollar for every dollar that is contributed to an IRA or employer-sponsored retirement plan. That's right. Just like large employers that offer a company match on 401(k) deposits, so, too, does the government offer a match for low-income savers.
The Retirement Savings Contribution Credit, also called the Saver's Credit, isn't exactly a match that is deposited into a retirement account. Rather, it comes in the form of a credit on one's income-tax return.
The credit, which phases down over time from 50 percent to 10 percent, is available for single filers with adjusted gross incomes of up to $30,000 and for married couples with incomes up to $60,000. The credit is limited to $1,000 per individual, but it's not a refundable credit, meaning that it only offsets a person's federal income-tax liability.
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This is of nominal value to those who pay little or no income tax.
The Saver's Credit was designed to encourage the working poor to save for retirement, but from every study that I've seen, it hasn't made a dent in the savings rates. It's extremely difficult to imagine that the creation of yet another government program is going to move the savings needle in a positive direction.