Uneasy Rhetoric

The ever-dependable Center on Budget and Policy Priorities has just posted a new study discussing a Congressional proposal to lift the income limit on Roth IRAs (currently higher income folks can’t take advantage of the Roth) while at the same time making the Saver Credit refundable. “Refundable” means you get your tax credit even if you don’t have any income taxes.

As the study points out, the reason IRAs - retirement savings accounts with tax advantages - exist is to encourage saving money for the long-term, in this case, for retirement. There is little use for encouraging savings among those who save as a matter of course: wealthy people.

Unfortunately, I’m afraid not many very poor people are taking advantage of the savers credit either. In order to take that credit, you need to be putting money into a retirement account. For a very poor person, that means taking a few dollars from an already meager paycheck and putting it into a “lock box” that won’t open for years. The tax advantages of saving in an IRA do not offset the very real need for cash. Making the savers credit refundable increases the incentive to save by, essentially, creating an annual cash pay out. For very poor families, this could be the difference between saving and not.