Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, along with a group of other Senate Democrats, have introduced legislation to make the Saver's Credit into a refundable tax credit to help more working families and middle-class Americans save for retirement.

The Saver’s Credit is currently a nonrefundable tax credit for eligible taxpayers who make elective deferrals to tax-favored retirement plans or contributions to individual retirement accounts. A tax reform working group in Congress proposed to make the tax credit refundable, like the Earned Income Tax Credit and the Additional Child Tax Credit, so even those taxpayers without any tax liability could receive the benefit. The proposal also would require the credit amount be contributed directly to a tax-favored retirement plan.

The bill, the Encouraging Americans to Save Act, would enhance the saver’s credit, a non-refundable tax credit for eligible taxpayers who make contributions to IRAs or employer-sponsored retirement plans, by making it refundable so those without a tax liability also benefit.  Additionally the bill would require that the credit amount be contributed directly to a tax-favored retirement plan.

Senate Democrats noted that the country is facing a serious retirement crisis with millions of American workers with no pension and nothing saved at all. In addition according to the Joint Committee on Taxation, over the next five years taxpayers will contribute over $1 trillion into subsidies for retirement accounts yet few middle class Americans will benefit from this aid.

“Not only are most Americans not prepared for retirement, but current tax incentives for retirement are skewed towards those who need help the least,” Wyden said in a statement. “It’s a double whammy that’s fueling the country’s retirement crisis. This legislation aims to level the playing field and create an opportunity to help families save.”

The legislation would create one credit rate of 50 percent, and establish the maximum amount of an individual’s contribution that is eligible for the Saver’s Credit at $1,000. However, the credit would be indexed for inflation . In addition, the bill would increase the maximum income threshold for the Saver's Credit to $65,000 for joint taxpayers and $32,500 for single taxpayers, while creating a phaseout range for those earning slightly above those limit. The legislation would require the credit to be contributed directly to a taxpayer’s MyRA or Roth retirement account

The credit would work more like a direct payment than a traditional credit.  For example, according to a summary of the bill from the Senate Finance Committee, if a taxpayer qualified for a $100 saver’s credit and for the 2015 tax year, the taxpayer filled out a tax return and owed the IRS $200 for 2015 (not taking into account the Saver’s Credit), the $100 Saver’s Credit would not be counted against the taxpayer's $200 liability.  Instead the $100 would be deposited in a MyRA or Roth retirement account, but the taxpayer would still owe the IRS $200.

By default, the credit would be contributed to a MyRA.  However, a taxpayer could elect to have the credit instead of deposited into their Roth IRA or Roth account in an employer retirement plan (if that was permitted under the plan).  Employers would not be required to accept the credit, and neither would IRA custodians.

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