Retirement Savings

Automatic Enrollment in IRAs

Employers that do not offer a retirement savings plan would be required to enroll their employees in a direct-deposit IRA. Businesses in existence for less than two years and businesses that have fewer than 10 employees would be exempt from this mandatory requirement. Employees would be able to opt-out. Contributions would be made on a payroll-deduction basis and would count toward any enhanced saver’s credit to which the employee may be entitled. Additionally, qualified employers would be able to claim a temporary credit of $25 per participating employee, up to a total of $250 per year for two years.

IMPACT: To give employers and employees time to adjust to this savings method, the president’s proposal would be effective January 1, 2012. The automatic enrollment feature is already an option for 401(k) plans.

Small Employer Plans

Current law provides qualified small employers (employers with no more than 100 employees) a tax credit equal to 50 percent of the employer’s start-up expenses of establishing or administering a retirement plan. The maximum credit is $500 per year for three years. The president proposes to raise the maximum credit to $1,000 per year for three years. The enhanced credit would be available for tax years beginning after December 31, 2011.

Saver’s Credit

The saver’s credit rewards lower and moderate income taxpayers who contribute to retirement savings plans, including traditional and Roth IRAs, qualified plans, qualified cash or deferred arrangements, and other arrangements. The credit offsets part of the first $2,000 in contributions. The amount of the credit is equal to the credit rate (50, 20, or 10 percent) times the amount of qualified retirement savings contributions (not to exceed $2,000). The credit rate depends upon the taxpayer’s filing status and AGI. The maximum saver’s credit is $1,000 ($2,000 for married couples).

The president proposes to make the credit fully refundable. Additionally, the credit would be converted to a 50 percent match on up to $500 in qualified retirement savings for individuals ($1,000 for married couples filing a joint return). Further, the income caps would be raised, ranging from $32,500 for single filers to $65,000 for married taxpayers filing jointly.

IMPACT: Taxpayers could elect to deposit the match into the IRA or retirement account in which they contributed. The $500/$1,000 and AGI amounts would be indexed for inflation beginning in 2012.

Source: CCH, a Wolters Kluwer business