The New Saver’s Match Sounds Like Free Money. There’s One Catch to Consider.
If you’ve received a letter from the IRS recently about the new Saver’s Match, the offer probably sounds pretty straightforward: save for retirement, and the federal government may put additional money into your retirement account. And for many people, that could be a great opportunity.
But there’s an important piece of the puzzle that may not be obvious from the letter, especially if you currently receive Medicaid benefits. Depending on the type of Medicaid coverage you have, money held in a retirement account could count toward a financial resource limit. That means taking advantage of the Saver’s Match without first understanding your specific situation could have an unintended effect on your benefits.
What Is the Saver’s Match?
Beginning with retirement contributions made in 2027, the Saver’s Match will replace the current Saver’s Credit for most eligible retirement contributions.
Instead of receiving a traditional nonrefundable tax credit, eligible taxpayers can receive a federal matching contribution deposited into a qualifying retirement account. The government will match up to 50% of the first $2,000 you contribute, which means the maximum match is $1,000 per person each year. For married couples filing jointly, each spouse may qualify for their own match.
The amount you can receive depends on your modified adjusted gross income and filing status. For 2027, the full 50% match is available at lower income levels and gradually phases out as income increases. You’ll claim the match when you file your 2027 federal tax return in 2028.
On its face, it sounds like an easy decision. If someone is offering to add money to your retirement savings, why wouldn’t you take it? For most people, that may be exactly right, but not for everyone.
The Medicaid Question the IRS Letter Doesn’t Answer
The Saver’s Match rules determine whether you qualify for the federal match. They don’t determine whether adding money to a retirement account could affect another benefit you receive. That distinction matters for Medicaid. Not every Medicaid program has an asset or resource limit. In fact, Medicaid eligibility based on Modified Adjusted Gross Income, or MAGI, generally does not include an asset or resource test.
Other Medicaid eligibility categories do. For example, Medicaid programs serving certain people who are aged, blind, disabled, or receiving long-term care may consider both income and financial resources when determining eligibility.
Here in Indiana, current Medicaid guidance generally sets an asset limit of $2,000 for a single person and $3,000 for a married couple in the aged, blind, and disabled category. Indiana also identifies IRAs as resources that may be counted when determining Medicaid eligibility, depending on the circumstances. That creates a potential issue.
A $1,000 Match Could Change More Than Your Retirement Balance
Imagine someone qualifies for the Saver’s Match and receives $1,000 deposited into an IRA. From a retirement-planning perspective, that sounds like a win. They received an additional $1,000 toward their future without having to contribute that additional amount themselves.
But if that individual receives Medicaid through a program with a financial resource limit, the IRA balance may be part of the eligibility calculation.
Suddenly, the question isn’t simply, “Do I qualify for the Saver’s Match?” It’s also, “What happens to my other benefits if I receive it?” Those are two very different questions, and because Medicaid eligibility rules vary based on the type of coverage you receive and your individual circumstances, there isn’t one answer that applies to everyone.
Don’t Assume This Means You Should Skip the Match
We want to be very clear about this part. Receiving Medicaid does not automatically mean you shouldn’t participate in the Saver’s Match. Many Medicaid recipients are covered under eligibility rules that do not impose an asset test at all. Others may have circumstances that change how a particular retirement account is treated.
The important thing is to understand the interaction before making a decision. This is especially important because the Saver’s Match was created specifically for low- and moderate-income taxpayers, which means some of the people most likely to qualify for the match may also participate in income-based government benefit programs.
Something can make perfect sense from a tax perspective and still have consequences somewhere else in your financial life.
Before You Make a 2027 Contribution
You don’t need to take action on the Saver’s Match in 2026. It applies to eligible retirement contributions beginning in 2027, with the match claimed on your 2027 tax return filed in 2028. That gives you some time to understand how the new program fits into your overall financial situation.
If you currently receive Medicaid or another benefit with financial eligibility requirements, don’t make your decision based solely on the IRS letter. Find out which Medicaid eligibility category applies to you, whether your benefits include a resource limit, and how the retirement account receiving the match would be treated.
The Saver’s Match could be a valuable opportunity to build retirement savings. We just want to make sure you know what accepting that money could mean for the rest of your financial picture.
Have questions about how the Saver’s Match fits into your tax situation? Reach out before 2027 contributions begin. We can help you understand the tax side of the equation and identify questions you may need to discuss with the appropriate benefits professional.