Farrell: There's a new way for low- and moderate-income workers to save for retirement

Saving for retirement is hard, especially for workers earning low to moderate incomes on the job.

Thanks to recent legislation, saving for retirement has got a little easier for some employees. A cluster of retirement-related provisions — collectively known as Secure 2.0 — were included in the massive spending bill passed by Congress and signed by President Joe Biden to keep the federal government running.

The retirement-saving changes are far from revolutionary. They fall short of the need for greater economic security for an aging population. Still, several initiatives take valuable steps toward boosting retirement savings. Since we're in the tax-preparation season, I want to emphasize one modest but smart change to the federal Saver's Credit.

The tax credit is targeted at people with low to moderate incomes who participate in a qualified retirement-savings plan at work, an IRA or an ABLE account. (ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families.) The Saver's Credit exists to encourage people to save.

Problem is, have you heard of it? Many potential beneficiaries haven't.

The TransAmerica Center for Retirement Savings reports that only 48% of workers surveyed were aware of the credit. Part-time workers were less aware than full-time workers (40% vs. 50%).

If you qualify, file for the credit.

Filers can get a maximum of up to 50% of their retirement savings contribution as a nonrefundable tax credit. The tax credit is worth up to $1,000 for individuals and $2,000 for married filers. To get the credit you need to owe at least that much in taxes.

There are income limits. For married taxpayers filing jointly in tax year 2022, the credit phases out when adjusted gross income is above $68,000. For single filers the limit is $34,000 and $51,000 for head of household.

The improvement in the credit — relabeled the Saver's Match — starts in 2027. Taxpayers who qualify won't need to owe income tax to receive it. In essence, they'll receive a federal matching contribution into their retirement plan.

"The problem was that it was not refundable so most of the people with an income low enough to qualify couldn't benefit since they didn't owe any income tax," writes economist Dean Baker, co-founder of the Center for Economic Policy and Research. "The Secure 2.0 Act provisions fix this so these workers can get the credit even if they don't owe any income tax."

Definitely a step in the right direction.

Farrell is economics contributor to the Star Tribune, Minnesota Public Radio and American Public Media's "Marketplace."