Promoting a Tax-Conscious Approach to Retirement Saving

Regardless of how tax policy changes under the new administration and Congress, it will remain crucial for retirement investors to consider the impact taxation will have on lifetime wealth. 

By Javier Simon | January 18, 2017
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With the possibility of tax reform affecting deferral limits and other aspects of retirement savings, plan sponsors and their advisers are at critical positions to communicate a tax-conscious approach to retirement savings.  

Catherine Collinson, president of the Transamerica Center for Retirement Studies, tells PLANSPONSOR that many eligible participants may need to be reminded about the Saver’s Credit, a tax benefit designed to help low- and middle-income workers. For 2017, the maximum adjusted gross income needed to earn this benefit is $46,500 for tax payers filing as heads of household and $62,000 for married or joint filers.   

However, according to the latest Annual Transamerica Survey of Workers, only 33% of employees are aware of the Saver’s Credit, suggesting plan sponsors can benefit from informing participants about this benefit and how to file for it via form 8880. Collinson notes some participants could have free access to planning software via, which can help determine if they are eligible and how to file for the credit.

While awareness of specific tax benefits could be improved, there is a general consensus that most Americans want to preserve tax incentives of retirement plans. This preference even extends to people without retirement plans, according to a study by the Investment Company Institute.

Moreover, the Transamerica survey found that 34% of Americans believe extending the Saver’s Credit to all filers regardless of income should be a priority for incoming President Donald J. Trump and the new Congress.

Clearly, the idea of having a tax benefit to save for retirement is popular among Americans and helps to show that saving for retirement is the responsible thing to do. However, awareness of these incentives needs to be raised, experts agree. For example, retirement plan fiduciaries could nudge all of their employees in the right direction by utilizing a multimedia educational approach.

“For decades, being able to save on a tax-deferred basis has been a powerful motivator for people to save,” Collinson explains.

Next: Benefits of a Roth 401(k)