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New Retirement Savings Law Will Aid Freelance Workers and Others

S.J. Steinhardt
Published Date:
Jan 6, 2023


Many Americans, including freelance workers, will be better able to save for retirement thanks to a section of the omnibus appropriations signed into law by President Joe Biden last month, the New York Times reported.

The new retirement law, Secure 2.0, includes dozens of retirement-related provisions. Among them are a “saver’s match” for nontraditional, and low- and moderate-income workers, which will become effective in 2027.

The law allows for a federal government matching contribution of up to $2,000, for any eligible individual—anyone 18 or older who is not a dependent, full-time student or nonresident alien—who makes qualified retirement savings contributions for a tax year, which the individual will claim as a tax credit, according to The Journal of Accountancy. Such a match would be equal to 50 percent of the individual's contribution for the tax year, but it would begin to phase out for married taxpayers filing jointly with modified adjusted gross income above $41,000. For taxpayers filing as head of household, it would phase out at three-quarters of that amount, or $30,750; and for single taxpayers, it would phase out at half that amount, or $20,500. These numbers would be adjusted for inflation after 2027.

Nontraditional workers could benefit from this provision because they often do not have access to an employer-sponsored retirement savings plan. Lacking access to such a plan represents a major retirement savings challenge for these workers, the Times reported, citing research from the Pew Charitable Trusts.

The new program is “a more effective way of getting people to save,” Tim Steffen, director of tax planning at Baird Private Wealth Management, told the Times.

The worker’s qualifying contribution can be made to either a traditional or Roth retirement account, but the government match must go into another eligible account, such as a traditional IRA, Sarah Brenner, director of retirement education at the IRA advisory firm Ed Slott and Company, told the Times.

Until this match goes into effect, workers have the option of the “Saver’s Credit.” This provision of the tax code allows individual taxpayers to claim some retirement contributions as a reduction in their tax bill. Eligibility and the size of the credit vary depending on income, filing status and retirement contribution amount.

For now, nontraditional workers can make Roth contributions with Simplified Employee Pension Plan IRAs. These are often used by self-employed people because contribution limits are higher, Brenner told the Times.