Roth IRA owners may need a second account to claim the Saver’s Match

For low- and moderate-income workers contributing to retirement savings, the new federal Saver’s Match, scheduled to begin with the 2027 tax year, could be a very welcome addition to their nest eggs. But many existing savers may need a different account first to get the money.

Authorized by the 2022 Secure 2.0 retirement legislation, the Saver’s Match program will provide income-eligible retirement savers with a matching annual contribution of up to $1,000 for single tax filers and $2,000 for joint tax filers. They can receive this benefit whether they save through a workplace plan such as a 401(k) or through an individual retirement account.

The catch: Although contributions to an IRA qualify workers for the match, the money the worker is entitled to can only go to the traditional IRA, not the Roth IRA. That means employees who save through Roth, including nearly all those enrolled in state-run auto IRA programs, will need a traditional account to get the match, experts say.

As of April 30, more than 1.2 million accounts in government programs held $3 billion in assets. accordingly Georgetown University Center for Retirement Initiatives.

“Government programs certainly want, can and will ensure their participants enjoy these benefits. [Saver’s Match]because these participants are exactly the low- to middle-income workers for whom the match was designed,” said Angela Antonelli, the center’s executive director.

“However, there is unnecessary administrative complexity because the match must be deposited into a traditional IRA, whereas government programs deposit default savings into a Roth IRA,” Antonelli said.

“While certain operational elements of Saver’s Match are still being developed, the expectation is that both traditional and Roth IRAs will ultimately be permitted,” a White House official said in an emailed response to a CNBC inquiry.

But experts say an act of Congress may be needed to allow the money to be transferred to a Roth.

“It’s in the law,” said Ed Slott, an IRA expert and certified public accountant. “It specifically says the match can only go into pre-tax accounts, which is a little odd because contributing to a Roth qualifies for the match, which cannot go into a Roth.”

Under the Saver’s Match program, single taxpayers earning up to $20,500 in annual income or joint taxpayers earning up to $41,000 may be eligible for a government match equal to 50% of their retirement contributions up to $2,000, for a maximum annual match of $1,000. Single applicants with annual income between $20,500 and $35,500 will be eligible for discounted matching contributions, as will joint applicants with income up to $71,000.

The program replaces the so-called Savings loan that continues to be used through 2026 tax year for low- and moderate-income retirement savers. While similar to the Saver’s Match (with a maximum value of $1,000 for single filers and $2,000 for joint filers, based on income), it is a non-refundable tax credit, meaning it can only be used to reduce your tax burden rather than increasing the refund.

The new Saver’s Match is part of a broader ongoing effort to help employees save better for retirement. An estimated 53.7 million full-time and part-time workers ages 18 to 65 do not have access to any employer-based retirement plan, according to the report. 2025 research from the Economic Innovation GroupA bipartisan public policy group.

TrumpIRA.gov, a new website for employees to sign up for IRAs and collect the Saver’s Match when distributed, if eligible, is expected to launch next year.

Although the Treasury Department has not yet issued any guidance on the subject, experts expect this match to be granted when a worker’s 2027 tax return is filed in early 2028. The agency did not respond to a CNBC inquiry seeking more information.

Meanwhile, 17 states have active retirement programs for workers who don’t have a company-sponsored plan. Hawaii It is expected to become the 18th state later this year. Although there are some minor differences between these programs, most involve automatically enrolling employees in Roth IRAs through payroll deduction (starting around 3% or 5%) unless they opt out.

Generally, pre-tax money deposited into traditional IRAs cannot be withdrawn before age 59½ without incurring a 10% early withdrawal tax penalty unless an exception is met.

However, with Roth IRAs, savers can generally withdraw their contributions at any time without taxes or penalties because the money was contributed after-tax.

While some government programs offer a traditional IRA if the worker wants one, less than 1% switch from the default Roth to an IRA, according to Vestwell, a financial technology company that manages most government programs.

“In an ideal world, if there was the ability to roll those matching dollars into a Roth, I don’t think anyone would argue that [with] said Courtney Eccles, Vestwell’s senior vice president of relationship management.

And of course, this mismatch will also apply to retirement savers outside government programs.

“If anyone is saving for retirement and the only vehicle they currently use is a Roth IRA, they will have the same potential concern whether they are in a government program or not,” Eccles said.

Eccles said one idea would be for workers enrolled in government programs to open a traditional IRA as a “sidecar” to their Roth IRA at the same time Saver’s Match is distributed.

However, there may be an additional expense for the worker to do this due to the costs associated with administering IRAs.

“What could help with both the fees and the challenges on the administrative side is where the Treasury can help,” said John Scott, director of the retirement savings project at the Pew Charitable Trusts, a nonprofit research organization.

“For example, if [the state] If you’ve already set up a Roth for the participant, maybe some of the paperwork required to open a traditional IRA could be waived or reduced… which would make them easier to set up and possibly reduce the cost as well,” Scott said.