NEW YORK (Reuters) – President Barack Obama on Monday proposed a host of new measures designed to assist struggling middle-class individuals and families. Among other things, his proposals would expand existing tax credits for child care and retirement savings, and provide financial relief for families caring for children and the elderly.
Here’s a closer look at some of the administration’s new proposals, gleaned from a White House factsheet, and other legislative plans that are under consideration in the House and Senate:
- Boost Safety-Net Workplace IRAs: One proposal would require companies that don’t offer retirement-savings plans to automatically enroll their workers in tax-deferred retirement accounts, or “workplace IRAs.” (Employees would have the option to join or not.) After enrollment, a certain percentage of a worker’s income would automatically be directly deposited into the retirement account. The account would allow employees to choose how to invest their own savings, but a default investment — typically a bond or money-market mutual fund — would be chosen for participants who fail to choose an investment option. The government would provide a tax credit for companies to help offset the costs of setting up the new IRAs, but certain small businesses would be exempt.
- Expand the “Saver’s Credit”: This proposal would encourage saving for retirement by expanding the “Saver’s Credit” to families earning up to $85,000 (formerly, it was limited to income of $53,000 for married couples filing jointly). Eligible taxpayers now can take a credit of up to $1,000 (or $2,000 for joint filers) for contributions to a qualified IRA, 401(k) and certain other retirement plans. The administration also plans to match 50 percent of the first $1,000 of contributions for families with income of $65,000 or less. The tax credit is on top of other tax benefits available for retirement contributions, such as the deduction for contributions to a qualified IRA.
- Enhance 401(k) Transparency: The administration hopes to make employees more aware of retirement-plan fees and investment performance by requiring that plan documents be made clearer and easier to understand. One proposal would require that plan documents report all fees charged against a worker’s 401(k) — administrative, investment management, transaction and other fees — in a prominent place on quarterly statements. The proposals would require that plan participants receive clear information on risk, return and investment objectives before they contribute to a plan. Finally, the administration will promote the availability of annuities and other forms of guaranteed-income investments in 401(k)s, reducing the risks that retirees will outlive their savings.
- Bigger Tax Break for Families, Expand the “Child and Dependent Care Tax Credit”: The proposal would nearly double the child tax credit rate to 35 percent of qualifying expenses, from the current 20 percent for families earning less than $85,000 a year. Families making up to $115,000 would be eligible for a larger portion of the tax credit as well. The administration also proposes to increase child-care funding by $1.6 billion next year. Finally, another $102.5 million would be allocated to elder-care programs.
- Cap on Student Loan Repayments: College grads would get a break from onerous student-loan repayment schedules by capping monthly payments to 10 percent of a “basic living allowance.” The cap is now 15 percent. A student with $20,000 in loans, and an income of up to $30,000, would have a monthly payment of $115, almost half the $228 a month under a standard 10-year repayment plan, according to the White House factsheet.