Saving money isn’t easy, particularly if your budget is tight. Not only does it require living below your means, but it also requires delayed gratification and thinking long-term. Most humans aren’t great at any of those things. U.S. President Donald Trump wants to highlight a subtle policy shift meant to incentivize people to get into the savings habit. It could be a big deal.
A credit vs a match
According to a recent Presidential executive order, “Tens of millions of Americans lack access to employer-sponsored retirement plans.” The number is pegged at roughly 56 million, according to the Pew Charitable Trust. The list includes independent contractors and those who are self-employed, among others.
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There is already an incentive in place to help such people save, but it is structured as a tax credit. There are income limits, but the basic model is that a person who saves in an eligible tax-advantaged retirement account can get up to a $1,000 credit. The credit is worth 50% of the amount saved up to $2,000. That’s great, but there’s a small incentive problem. You have to put in $2,000 and wait until tax time to get the $1,000 credit, which reduces the taxes you owe. It isn’t well used, with the government noting that only “5.7% of taxpayers claimed the credit, and the average credit was $191.”
A Saver’s Match has been created to “largely replace” the Saver’s Credit. The difference is subtle, but important. Instead of getting a tax credit, or money off their taxes, those who save will effectively receive free money in the form of a match. The match is up 50% of contributions of up to $2,000, subject to income limitations. That’s the same $1,000, but the positioning is very different.
Generally speaking, people like getting things they perceive as free, as evidenced by the prevalence and success of buy-one-get-one (BOGO) free or half-off offers in the retail and fast food sectors. The hope is that this will incentivize people to save in tax-advantaged accounts, such as individual retirement accounts (IRAs).
Trump wants to tell you all about the match
The other big step here is the President’s executive order to create a website called TrumpIRA.gov. This site is designed to highlight the match and make it easier for savers to find financial companies that offer retirement accounts that will be eligible for that match. According to the order, “It is the policy of the United States to promote high-quality, low-cost individual retirement accounts.”
All in, this isn’t really a “Trump” IRA. It is just a convenient website that provides valuable information about IRAs and the new matching program. If you use the portal, you’ll likely end up with an account from a well-known financial institution.
But the big story is that you could qualify for some free government money if you take the time to visit. And whatever they end up calling the website in the long term, just getting started with an IRA (match or not) could be an important step for many would-be savers.
