Retirement Savings: Student Loan Payments Will Roll Into Your 401(k) Match in 2024 — Here’s How It Works

Young financial advisor visiting retirement home.
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Student loan payments have resumed for more than 40 million borrowers after a three-and-a-half-year payment pause thanks to the COVID-19 pandemic. A recent Corebridge Financial survey indicated that 75% of borrowers said that resuming student debt payments will impact their ability to save for retirement, 29% of borrowers expect to reduce savings overall and for emergencies, and 22% surveyed said they’ll have to reduce savings for retirement. 

Luckily, your employer can help with that very soon.

How The Secure 2.0 Act Could Benefit Borrowers

Secure 2.0 Act is a recent federal legislation to improve retirement benefits nationwide. One key provision of this change is that in 2024, employers can begin counting student loan payments as qualifying contributions toward retirement matching programs, according to the Wall Street Journal.

Simply, this change means that if your employer offers to match your 401(k) contributions, you could get that matched money without depositing funds in your retirement account. Instead, your monthly student loan payments would count as your contribution. The benefit could be especially significant for recent graduates, who often have moderate incomes starting at $58,000 on average. To add, these graduates also carry high levels of debt, an average of $33,000 for federal borrowers aged 25 to 35.

“A huge portion of their paychecks go toward paying skyrocketing rent, mortgage payments, and other living expenses,” says Joelle Spear, a certified financial planner with Canby Financial Advisors in Framingham, Mass. “Adding monthly debt payments to this mix can leave them with very little extra to save for their retirement.”

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How the 401(k) Matching Feature Works

Many employers offer a 401(k) match when you elect to contribute a certain percentage of your earnings each pay period. For example, suppose you select to contribute 4% of your profits toward your 401(k). In that case, your employer may offer a 4% match each time you contribute, resulting in an 8% contribution for each deposit.

Under this new law, if you pay 4% of your salary towards student loans each month, and perhaps nothing toward your 401(k), your employer can add that same 4% to your 401(k) on your behalf.

“This will be a game-changing benefit,” says Jesse Moore, head of student debt at Fidelity Investments. “Plan sponsors will be able to rely on their existing budgets to help those that previously may not have been able to afford to save.”

In other words, employers would be able to match an employee’s student loan payments instead of an employee’s retirement contribution, if preferred. Not all employers will choose to participate in this program but for those who do, it will be an attractive added benefit to retain good talent and attract new talent.

How To Get Your Student Loans Matched

If your employer does choose to offer this benefit, here are the rules:

  • You’ll have to have an eligible retirement account — either a 401(k), 403(b), 457(b), or Simple plan — and make payments on a qualifying education loan. This can include a loan for yourself, your spouse, or a dependent.
  • You’ll need to self-certify your income. But the process for that isn’t clear yet.
  • Your retirement contributions must be within the annual retirement contributions limits set by the IRS and can change each year. So, if you can contribute enough toward retirement to get your employer’s full match without counting student loans, that will amount to the most savings for you in the long run.
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