Under a newly implemented provision of the SECURE 2.0 Act, borrowers are now afforded the opportunity to allocate their student loan payments toward their retirement savings.
This voluntary provision recently became operational, offering borrowers the chance to inquire with their employers regarding participation.
Section 110 of the SECURE 2.0 Act authorizes employers to extend retirement plan matching benefits for eligible student loan payments.
This provision enables borrowers to have their student loan payments considered as qualifying contributions for their employer’s matching contributions to 401(k), 403(b), or SIMPLE IRA plans, irrespective of whether they are presently making contributions themselves.
Implemented in January, this optional measure offers individuals burdened by student loan debt an alternative avenue to accumulate retirement savings, while simultaneously providing employers with an additional retention incentive and recruitment benefit.
How Does the SECURE 2.0 Act Work?
The latest provision enables borrowers to include their monthly student loan payments in their company’s 401(k) plan if matching contributions are offered.
For instance, as explained by Ross Solverud, retirement plan compliance leader at Sentry Insurance, if an employee has a monthly student loan payment of $300 and is unable to afford contributions to the 401(k), the student loan payments are treated equivalently to 401(k) contributions.
As of 2024, employers have the choice to provide a “match” for student loan payments as though these payments were contributions to the 401(k) plan.
However, the new option extends beyond employees who have not yet made contributions. Those who are not maximizing their full match due to student loan payments can also take advantage of the provision.
Eric Stevenson, president of Nationwide Retirement Solutions, explained: “For instance, if an employee earns $60,000 annually and the company offers a 5% match on 401(k) contributions, but the employee only contributes 3% because of $600 monthly student loan payments, they are foregoing 2% or $1,200 in matching funds.” He added, “With the SECURE 2.0 provision, they can allocate their student loan payments towards the 2% to receive the full 5% match.”
