How employers can match student loan payments in your 401(k)
Starting in 2024, it will be easier for employers to match contributions to 401(k) accounts when employees make payments on their student loan debt.
Americans who borrowed money for their higher education and are carrying a debt should start preparing for the resumption of payments on their federal student loans. After more than three years of a moratorium, interest will begin accruing once again in September and the first payments will come due in October.
Federal student loan borrowers will not benefit from proposed debt forgiveness program. The Supreme Court ruled that President Biden did not have the authority to cancel up to $20,000 for eligible borrowers. The White House is now working on a new way to cancel at least some debt for certain borrowers.
But there are other ways that they can seek debt relief through other programs already available from the US Department of Education or even their state. Additionally, borrowers will soon have the possibility of being able to save for retirement with help from their employer at the same time they pay down what they owe.
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How employers can match student loan payments in your 401(k)
Thanks to the Secure 2.0 Act passed at the end of 2022, it will be easier for employers to match employees’ student loan repayments with contributions to the 401(k) plans and other workplace retirement plans including 403(b)s, 457(b)s and SIMPLE IRAs. The new regulations come into effect in 2024 and they mean that Americans won’t have to choose between paying off debts acquired to get a higher education and putting money away for their golden years.
Under the new rules, employers will not have to work with the IRS on a case-by-case basis. All employers are eligible which will allow them to use such programs as a tool for recruiting and retaining talent. An added benefit for employers is that as opposed to them helping employees with student loan repayments, which were taxable, the matching payments to a workplace retirement account will not be taxed.
In order to benefit from the matching student loan repayments and employer retirement plan contributions, the employee must make their payment from their eligible earnings during the same period as the contribution.