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Contact: Kristin Lawton, 202.408.9788

Aug 21, 2014

Despite Massive Federal Retirement Tax Spending, Working Families Get Little Support to Grow their Nest Eggs

The top 1% of households receives more tax benefits than the combined total for the bottom 60%

Washington, D.C. - Federal spending on retirement tax programs in 2013 outweighed the discretionary budgets of 14 cabinet-level U.S. agencies. But almost all of those funds went to the highest income households while providing little help to families who needed it most, according to a new analysis by the Corporation for Enterprise Development (CFED).

Upside Down: Retirement Tax Programs found that the highest-income 1% of households received $15.9 billion annually in tax benefits from a combination of retirement savings plans - more than the combined total ($12.7 billion) of the entire bottom 60% of the population. CFED found that the further up the economic ladder one goes, the greater the benefit. A person in the top 0.1% received an average of $16,115 in tax benefits in 2013 from Defined Contribution and Defined Benefit Employer Plans and Individual Retirement Accounts (IRAs). A person in the bottom 20% got an average of just $27.

"At a time when half of working Americans rightfully fear that they do not have enough savings to retire, the federal government is sending huge checks to millionaires to support their retirement savings," said Jeremie Greer, director of government affairs for CFED. In all, the federal government spent nearly $130 billion in 2013 on tax programs to encourage Americans to save for retirement, more than every cabinet level agency except the Department of Defense.

The report found that Keogh Plans, which account for $19.4 billion in government spending, are especially tilted toward wealthy households. In 2011, just slightly more than one third of one percent of tax filers with incomes below $200,000 reported deposits in Keogh plans. By contrast, nearly 40 percent of tax filers with income over $500,000 deposited into Keoghs. These plans are particularly attractive to high-income business owners and self-employed entrepreneurs who can take advantage of their high contribution limits.

The Savers Credit, which offers a benefit to low- and moderate-income households who make deposits in retirement accounts, was the only retirement tax program that did not fit this otherwise upside-down spending picture. The report found that a majority of Saver's Credit support ($730 million out of a total $1.2 billion) went to families in the bottom 40%. However, the Saver's Credit is tiny compared to the other tax benefit programs. In fact, the federal government spends more than 15 times as much on retirement tax deductions for the top 1% as it spends on the Saver's Credit for the bottom 60%.

"Our current retirement tax spending is upside down," said Ezra Levin, federal affairs manager for CFED. "The model for retirement tax programs shouldn't be accounts with large barriers to entry, but rather targeted support for working families who need help the most. In other words, the model should be the Saver's Credit, not the Keogh."

The report offers a number of recommendations to ensure low- and moderate-income households get a fair share of retirement savings tax support. These include:

  • Reforming existing deductions for retirement savings in order to provide support to all American workers who save for retirement.
  • Making the currently nonrefundable Savers Credit fully refundable to provide additional support to low-income workers.
  • Expanding the income thresholds for the Savers Credit (currently $30,000 for individuals) so that the credit benefits those further up the income spectrum.
  • Reducing contribution limits for retirement savings, which run as high as $52,000 in some tax-deferred retirement plans. The tax dollars saved from this reform could be redeployed to fund programs that support working families.
  • Creating a simple and affordable universal retirement savings account, such as the Obama administration's recently proposed myRA, which would help the half of workers who lack access to employer-sponsored retirement plans.

To read the full report, Upside Down: Retirement Tax Programs, click here.


CFED empowers low- and moderate-income households to build and preserve assets by advancing policies and programs that help them achieve the American Dream, including buying a home, pursuing higher education, starting a business and saving for the future. As a leading source for data about household financial security and policy solutions, CFED understands what families need to succeed. We promote programs on the ground and invest in social enterprises that create pathways to financial security and opportunity for millions of people. Established in 1979 as the Corporation for Enterprise Development, CFED works nationally and internationally through its offices in Washington, D.C.; Durham, North Carolina, and San Francisco, California.

Copyright © 2017 CFED Corporation for Enterprise Development 1200 G Street, NW Suite 400 Washington, DC 20005 202.408.9788

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