Low-Income Families Get Penalized For Saving Money

The more low-income families store away money for retirement, the more they might be paying higher taxes, according to the Los Angeles Times.   Low-income households face “astronomical” penalties for saving, according to a report by the National Center for Policy Analysis. For every saved $1, a single parent who earns $15,000 pays $2.60 in higher taxes and lost government benefits.   “We’re constantly told that we need to save early and often to prepare for retirement,” said Laurence Kotlikoff, a professor at Boston University and author of the study. “Yet government policies tell low-income families, ‘If you save for the future, you won’t get our help today.’”   The government has sharply increased amounts that Americans can set aside on a tax-favored basis for retirement, created a tax credit for low-income people who fund retirement accounts and launched a number of public campaigns urging people to save money over the past decade.   Those efforts are hindered by incentives created by the government, Kotlikoff said. The tax credit for saving for retirement goes away when the taxpayer also qualifies for the earned income tax credit. Also, saving for retirement disqualifies families for food stamps, healthcare benefits and assistance given to poor families with children.   For example, in Massachusetts anyone with assets over $2,500 is disqualified from receiving federal assistance to families with dependent children. The only way to fix the problems described in the report would be a massive overhaul of the U.S. tax code and the way benefit programs are administered, Kotlikoff said.   The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.