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Soon, you can start paying down your existing student loan debt while boosting your retirement savings with the SECURE 2.0 Act's 401(k) student loan match program. The 401(k) student loan match program allows U.S. workers to pay down debt while simultaneously growing their nest egg.
Many of the best retirement plans provide employer-match benefits for participating employees. Employer matches for qualifying student loan payments have the same eligibility and vesting rules as standard employer match contributions.
The 401(k) student loan match program is set to launch on January 1, 2025. Here's what you need to know.
The 401(k) student loan match is a program implemented as part of the SECURE 2.0 Act. It allows employers to make matching contributions to employees' retirement plans after those employees make a qualifying student loan payment. This program is one of many provisions implemented by Secure 2.0 to help Americans prepare for retirement.
With a student loan-retirement match, employers can treat loan payments as qualifying contributions toward 401(k)s, 403(b)s, and similar retirement saving plans. Like a regular 401(k) match, a student loan match is treated using the same formula as contributions from your paycheck.
For example, if your employer's policy matches your 401(k) paycheck contribution dollar-for-dollar up to the first 5% of your salary, the same applies to the 401(k) student loan payment match.
Saving money and eliminating debt are building blocks for establishing long-term wealth in the U.S. However, workers have been drowning under ballooning interest rates, hefty education costs, and continuously inflated prices. Many young employees struggle to balance the cost of living while paying down debt and saving for retirement.
The Education Data Initiative found that the U.S. had $1.753 trillion in total student debt as of July 15. Nearly 42.8 million U.S. workers carry student loan debt, with the average federal student loan balance being $37,853.
"Student loan debt can be a significant drain on household income, shifting resources away from basic necessities, retirement savings, and other goals such as purchasing a home," says Teresa Greenip, CFP and senior wealth manager at Aspiriant.
The 401(k) student loan payment match program offers a new solution: Award employees with retirement money to encourage them to pay down student loan debt.
Match contributions from an employer have vesting requirements, which can take up to five years, depending on the plan. If you leave your current place of employment — or get laid off before your money is fully vested — you'll lose some or all of the non-vested money from your employer.
So, if the only money in your account is from employer-match contributions, you run the risk of having no retirement savings.
Under the student loan-retirement matching program, businesses can match contributions, up to a certain percentage, when an employee makes a qualifying student loan payment to their employer-sponsored 401(k), 403(b), 457, or SIMPLE IRA account.
Rather than depositing a portion of your paycheck in your 401(k) to max out your employer match — essentially earning you free money — you'll get the same employer match benefit when you make a qualifying loan payment. A matching contribution is one of the most powerful retirement savings benefits for workers to grow long-lasting wealth.
Remember, 401(k) student loan matches are required to adhere to the same match percentage, eligibility, and vesting rules as salary deferrals.
Any employer offering qualifying plans can provide a 401(k) student loan match as an employee benefit. If interested, consider contacting your employer's HR to inform them of this new opportunity. It could be as easy as sending an email.
Many U.S. employees struggle to repay their student loan debt, often neglecting to contribute regularly to their workplace retirement plans and sacrificing the additional benefit of employer-matching contributions. By forgoing their 401(k) or other plans, employees also miss out on years of tax-deferred or tax-free growth.
The Secure Act 2.0 relieves some employees of this financial strain by allowing them to earn free retirement money when they make qualifying student loan payments.
"Eliminating student loan debt can benefit the economy by shifting household resources from debt repayment to investment and spending, as well as increased personal productivity," explains Greenip.
A retirement plan like a 401(k) or pension is one of the more noteworthy benefits often sought by workers. Although not all workplaces offer employer-matching contributions, businesses that do generally have an easier time attracting and retaining talented employees.
A 401(k) match opportunity for salary deferrals and qualifying student loan payments appeals to U.S. workers looking to get the best of both worlds. Moreover, employees may be more motivated to stay until the funds in their retirement plan are fully vested (3 to 5 years).
Initially, the IRS provided little guidance on the program, including what was considered a "qualifying" student loan payment and how employers were expected to track and authorize their employees' student loan contributions.
"Employee deferrals to retirement plans are administered by employers themselves, so it's relatively easy to track contributions," Greenip explains. "Since employers do not track student loan repayments, this adds a layer of complexity and administrative support that will be needed to offer the benefit."
On August 19, the IRS issued interim guidance on 401(k) student loan matches, specifically on Section 110 of the SECURE 2.0 Act.
Here are the guidelines:
What is the Secure 2.0 Act 401(k) student loan match? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
The Secure 2.0 Act 401(k) student loan match is a program that allows employers to make matching contributions to employees' retirement plans after those employees make a qualifying student loan payment. It is one of many provisions implemented by Secure 2.0 to help Americans prepare for retirement.
How does Secure 2.0 affect employees? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
One of the major ways Secure 2.0 affects employees is through the new student loan payment match program. This program allows U.S. workers to pay off student loans while still earning employer-match contributions in a taxable retirement plan.
Can an employer pay off an employee's student loan? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes. Employers are able to pay up to $5,250 per year of an employee's student loan through the CARES Act. Similarly, your employers can offer a student loan match benefit, which allows employees to earn a matching contribution to a qualifying retirement savings plan after they make a qualified student loan payment.
