Retirement Savings Tax Breaks Leave Middle Class Households Behind

Staff Report

Wednesday, June 29th, 2022

A new report finds that the tax breaks designed to increase Americans' retirement savings disproportionately benefit high income households and do little to assist middle class families.

More than half of the tax breaks for defined contribution (DC) plans and Individual Retirement Accounts (IRAs) go to those in the top ten percent by income. Also, the top 30 percent of workers by income receive 89 percent of the present value of tax benefits for DC plans and IRAs. This leaves a "missing middle" because the tax code offers meager benefits for these working Americans to save for retirement. At the same time, these middle class workers face rising costs in retirement, often lack retirement plans at their jobs, and need more than just Social Security income in retirement to maintain their standard of living. 

These findings are contained in a new research report from the National Institute on Retirement Security (NIRS), The Missing Middle: How Tax Incentives For Retirement Savings Leave Middle Class Families Behind. This report documents how current tax incentives fail to promote adequate retirement security for the middle class. It considers the impact of factors including marginal tax rates, retirement plan participation, and income distribution on retirement saving levels. The research also offers potential solutions that could enhance retirement security for middle class families.