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IRS Requests Comments on Saver's Match Contributions Under SECURE 2.0 Act
(Parker Tax Publishing September 2024)
The IRS issued a notice requesting comments on Saver's Match contributions to be paid by the Treasury Department under Code Sec. 6433, which was added by the SECURE 2.0 Act of 2022 (Pub. L. 117-328). For tax years beginning after December 31, 2026, the Saver's Match allows eligible individuals to make annual contributions of up to $2,000 to a Code Sec. 401(k) plan or individual retirement account and receive as much as an annual $1,000 Saver's Match contribution from the Treasury Department. Notice 2024-65.
Background
Section 103 of the SECURE 2.0 Act of 2022 (Pub. L. 117-328) added Code Sec. 6433, which provides matching contributions (Saver's Match contributions) paid by the Secretary of the Treasury to applicable retirement savings vehicles on behalf of eligible individuals who make qualified retirement savings contributions. Section 104 of the SECURE 2.0 Act requires the Treasury Department to take steps to increase public awareness of the availability of Saver's Match contributions.
Under Code Sec. 6433, for tax years beginning after December 31, 2026, an eligible individual is allowed a Saver's Match contribution equal to an applicable percentage of up to $2,000 of qualified retirement savings contributions to a retirement account. A Saver's Match contribution is generally allowable as a tax credit that is payable by the Treasury Secretary as a contribution of up to $1,000 to an eligible individual's "applicable retirement savings vehicle" designated by the eligible individual. Code Sec. 6433(a)(2)(A) provides that a Saver's Match contribution must be made as soon as practicable after an eligible individual files a tax return making a claim for a Saver's Match contribution. Code Sec. 6433(a)(2)(B) provides that an individual who is eligible for a Saver's Match contribution of greater than zero but less than $100 for the tax year may elect for the amount claimed to be treated as a refundable income tax credit (rather than contributed to the individual's applicable retirement savings vehicle).
Observation: Beginning in 2027, the Saver's Match will replace the Saver's Credit under Code Sec. 25B, which was repealed effective for tax years beginning after December 31, 2026.
Code Sec. 6433(b) provides that the maximum percentage of qualified retirement savings contributions eligible for Saver's Match contributions is 50 percent and is reduced over a phaseout range based on an eligible individual's modified adjusted gross income. While the $2,000 maximum amount of qualified retirement savings contributions is not indexed for inflation, the modified adjusted gross income levels in the phaseout range are indexed for inflation. In determining the phaseout range, the modified adjusted gross income is determined based on the eligible individual's taxpayer filing status. For example, for most married filers, the phaseout range begins at $41,000 and ends at $71,000, and for most unmarried filers, the phaseout range begins at $20,500 and ends at $35,500.
Code Sec. 6433(c) provides that an eligible individual is an individual who has attained the age of 18 as of the close of the tax year, other than an individual who is (1) a full-time student as defined in Code Sec. 152(f)(2), (2) claimed as a dependent on another taxpayer's return for a tax year beginning in the calendar year in which the individual's tax year begins, or (3) a nonresident alien who meets certain conditions.
Code Sec. 6433(d)(1) provides that an eligible individual's qualified retirement savings contributions for a year are the sum of any of the following: (1) contributions to traditional and Roth individual retirement accounts and annuities (IRAs); (2) elective deferrals to a Code Sec. 401(k) plan, a Code Sec. 403(b) plan, a governmental Code Sec. 457(b) plan, a SIMPLE IRA, or a Simplified Employee Pension (SEP) plan; (3) voluntary after-tax employee contributions to a qualified retirement plan or annuity or a Code Sec. 403(b) plan; and (4) contributions to a Code Sec. 501(c)(18) plan. Code Sec. 6433(d)(2)(A) provides that qualified retirement savings contributions for a tax year are reduced (but not below zero) by the aggregate distributions received by the individual during a testing period defined in Code Sec. 6433(d)(2)(B) from any IRA, plan, or annuity of a type to which qualified retirement savings contributions may be made.
Under Code Sec. 6433(e)(2), an applicable retirement savings vehicle is an account or plan that (1) is a traditional (non-Roth) IRA or the non-Roth portion of a Code Sec. 401(k) plan, a Code
Sec. 403(b) plan, or a governmental Code Sec. 457(b) plan, (2) is for the benefit of an eligible individual, (3) accepts Saver's Match contributions, and (4) is designated by the eligible individual in such form and manner as the Treasury Secretary may provide.
Code Sec. 6433(f)(2)(A) generally provides that a Saver's Match contribution is treated as an elective deferral made by an eligible individual or as an IRA contribution (as applicable).. Code Sec. 6433(f)(2)(B) provides that the Saver's Match contribution is generally not taken into account with respect to retirement plan and IRA limitations. In addition, under Code Sec. 6433(f)(2)(C), the Saver's Match contribution is not treated as an amount that may be paid, made available, or distributable to the eligible individual as a hardship distribution under Code Sec. 401(k)(2)(B)(i)(IV) or an unforeseeable emergency distribution under Code Sec. 457(d)(1)(A)(ii).
Code Sec. 6433(f)(3) provides that any applicable retirement savings vehicle to which a Saver's Match contribution is made is not treated as violating any requirements under Code Secs. 401, 403, 408, or 457, as applicable, solely by reason of accepting that contribution. Under Code Sec. 6433(f)(4)(A), any Saver's Match contribution that was erroneously paid, including a payment that is not made to an applicable retirement savings vehicle, is treated as an underpayment of tax. Code Sec. 6433(f)(4)(B)(i) provides that, in the case of an erroneously paid Saver's Match contribution, the distribution of that contribution is excluded from income, and the 10 percent additional tax on early distributions does not apply to the distribution of that contribution or income attributable to such contribution, if the distribution of such amounts is received no later than the due date (including extensions) for filing the individual's tax return for such tax year. Code Sec. 6433(f)(4)(B)(ii) provides that any plan or arrangement that makes a distribution of Saver's Match contributions that were erroneously paid is not treated as violating Code Secs. 401, 403, or 457 solely by reason of making the distribution.
Code Sec. 6433(f)(5) provides that the Saver's Match contribution is not subject to certain reductions or offsets under Code Sec. 6402 and is not reduced or offset by other assessed federal taxes that would otherwise be subject to levy or collection.
Code Sec. 6433(f)(6) provides that in the case of an applicable retirement savings vehicle to which contributions have been made under Code Sec. 6433(a)(2) and from which a specified early distribution under Code Sec. 6433(f)(6)(B) has been made during the tax year, if the aggregate amount of those contributions exceeds the account balance of that savings vehicle at the end of the tax year, an additional tax applies (i.e., the Saver's Match Recovery tax). The Saver's Match Recovery tax equals he amount of the excess described in the prior sentence, reduced by (1) the amount of the 10 percent additional tax on early distributions imposed by Code Sec. 72(t)(1) that applies to such distribution, and (2) allocable investment losses (under rules prescribed by the Treasury Secretary). Under Code Sec. 6433(f)(6)(B), a specified early distribution is any portion of a distribution that is (1) made from the applicable retirement savings vehicle to which Saver's Match contributions have been made, (2) includible in gross income, and (3) subject to the 10 percent additional tax on early distributions imposed by Code Sec. 72(t)(1).
Code Sec. 6433(f)(6)(C) provides that an eligible individual may also reduce the Saver's Match Recovery tax (but not below zero) for a tax year during which a specified early distribution has been made by making additional contributions up to the amount of the specified early distribution to an applicable retirement savings vehicle to which rollover contributions may be made. The Saver's Match Recovery tax is reduced to the extent of the additional contributions. The additional contributions must be made by the due date (including extensions) of the eligible individual's tax return for the tax year in which the Saver's Match Recovery tax would otherwise be owed. In addition, an eligible individual's additional contributions to an applicable retirement savings vehicle that is not an IRA may only be made to the vehicle if the individual is otherwise eligible to make contributions to the vehicle. These additional contributions are treated as having been transferred in a direct trustee-to-trustee transfer within 60 days of the specified early distribution.
Request for Comments
On September 6, the IRS issued Notice 2024-65 to solicit comments regarding all aspects of Saver's Match contributions. Specifically, the IRS requested comments on the following issues:
(1) eligibility for Saver's Match contributions;
(2) how Saver's Match contributions are claimed;
(3) how to designate the destination for Saver's Match contributions;
(4) how the Treasury Department completes Saver's Match contributions;
(5) the Saver's Match Recovery tax on specified early distributions;
(6) reporting and disclosure of Saver's Match contributions; and
(7) other miscellaneous issues.
The deadline for comment submissions is November 4, 2024.
For a discussion of Saver's Match contributions, see Parker Tax ¶134,510.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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