DC, IRA owners have higher incomes, tax rates

The median marginal tax rate for households without DC plans or IRAs is 15 percent, compared to 25 percent for households with those savings vehicles. The median marginal tax rate for households without DC plans or IRAs is 15 percent, compared to 25 percent for households with those savings vehicles.

Households without employer-sponsored defined contribution (DC) pension plans or individual retirement accounts (IRA) have lower incomes and tax rates than households with those plans. The households are also likely to have limited additional resources to draw upon in retirement, according to General Accounting Office (GAO) estimates.

The GAO research shows the median adjusted gross income for households without DC plans or IRAs is $32,000, compared to $75,000 for those that do have them. The median marginal tax rate for households without DC plans or IRAs is 15 percent, compared to 25 percent for households with those savings vehicles.

A defined benefit (DB) pension plan could provide a monthly benefit during retirement years for those without a DC plan or IRA; however, in 2010 only 15 percent of married households and 11 percent of single households without a DC plan or IRA had a DB plan, the GAO data shows.

The existing Saver's Credit tax incentive could result in small increases in a household's retirement annuity -- that is, the household's annual retirement income received from DC or DB plans. GAO estimates that, on account of this credit, the median annuity increase for households in the lowest earnings quartile ($929-34,377) would be $155.

If, however, the Saver's Credit was refundable (i.e., could generate a tax refund in excess of tax paid), it could result in larger increases in households' annuities across all earnings levels. And the median increase for households in the lowest earnings quartile would be $876 per year.

Implementing automatic IRAs, unless waived by participants, could expand retirement coverage and modestly increase retirement annuities for households at all earnings levels, research adds. Specifically, seven percent of all households could receive retirement annuities from automatic IRAs even though these households had no DB or DC plans, according to GAO's projections.

Workers with DB or DC plans could also benefit from automatic IRAs at certain points in their lifetime if their jobs do not offer such plans. Moreover, low-income workers could see a sizable increase in their annuities under automatic IRAs and the existing Saver's Credit -- the projected median dollar increase for these households' annual retirement annuity would be $479.

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