Data show more than half of all students in the U.S. graduate with student loan debt, but here’s some good news: You may be able to save for retirement quicker while you pay your student loan.
The IRS just released new guidance on how some with student loans may be able to receive a retirement match from their employer for every loan payment made. So for example, if you pay $200 a month in student loans, you could get a $200 match from your employer toward your retirement fund.
Employers don't have to participate in the match. But if yours chooses to, here's what the IRS says you need to know to get started.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What is the SECURE 2.0 Act employer match?
The new IRS guidance clarifies how those with student loan debt can receive an employer-paid match into their retirement savings account. As mentioned, these matches are made for every qualified loan payment you make. (The IRS essentially allows your employer to treat the student loan payment as a qualifying contribution to your 401(k) or other similar retirement plan.) More on all of that later.
This could be a game-changer for some borrowers. Before the SECURE 2.0 Act, you were only allowed matches based on how much you contributed to your retirement plan since prior law didn’t provide a match for student loans. However, this new-ish law (enacted two years ago) is designed to encourage those with student debt to save more for retirement.
Studies show that grads with debt are disadvantaged when it comes to retiring. Those with student loans accumulate 50% less retirement wealth by age 30 than their student-debt-free peers. And the burden of those loans isn’t limited to young people. An economic think tank recently found that over 2.2 million Americans over 55 have outstanding student loan debt.
Under the student loan 401(k) match provision, there is no age limit to participate.
New 401(k) rules for student loans
Those with student debt who work for a participating employer with a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA can participate in the retirement match.
To qualify, you must be making "Qualified Student Loan Payments (QSLPs)." You should be prepared to provide your employer with the following QSLP information:
- The amount and date of the loan payment
- Confirmation that you made the payment (and not your friend, for example)
- Confirmation that the loan is a qualified student loan and was used to pay for qualified higher education expenses for yourself, your spouse, or your dependent
- Confirmation that you incurred the loan
“Qualified higher education expenses” for this match mean those expenses associated with the cost of attending school. If you can prove the above eligibility requirements, retirement matches may start right away.
Note: The IRS says a "qualified student loan" is a loan you took out solely to pay qualified higher education expenses that were: (1) For you, your spouse, or a person who was your dependent when you took out the loan; (2) For education provided during an academic period for an eligible student; and (3) Paid or incurred within a reasonable period of time before or after you took out the loan.
How much is the match and how do I enroll?
Your student loan contribution match will generally be the same as your plan’s regular match (i.e. same rates, vesting schedules, etc.). Your employer may require that you opt in and have you provide certification of your QSLPs to receive your match.
It's important to inquire with your employer if you are unsure about your retirement plan’s rate, rules, or other details.
Other ways to save for retirement
Only 40% of older adults rely on Social Security as a sole source of retirement income. And young people seem to know this. Data show that over 50% of adults aged 24 to 35 expect to rely on a retirement plan, such as a 401(k) as their source of income after retirement, not Social Security.
So what can you do to build your nest egg? Here are some ideas.
- Be sure you’re taking full advantage of all education tax credits and deductions
- Retirees: Make a tax plan
- Consider retiring in a tax-friendly state
Also, keep in mind that the IRS is gradually unfurling rules and regulations to fully implement the SECURE 2.0 Act. Currently, the agency is welcoming comments on the student loan match guidance and working on proposed regulations.
Related Content
-
What's Better Than Investing in Crypto? These 'Boring' PicksCryptocurrency may be good for a thrill, but older investors are better off with assets like bonds, guaranteed annuities, CDs and maybe dividend-paying stocks.
-
Four Actions to Lessen Retirement Stress for Women (and Men)Saving for retirement is anxiety-inducing for everyone, especially women. Following this four-part action plan can help improve your financial security.
-
Are You a Renter? You Could Save on TaxesTax Breaks With these tax savings at your fingertips, rent may be more affordable
-
2025 Open Enrollment: DACA Recipients Can Purchase Affordable Care Act Health InsuranceOpen Enrollment Over 100,000 people are newly eligible to purchase health insurance from the federal marketplace. Here's what you need to know.
-
Holiday Office Party Taxes: Know Before You GoTax Tips The IRS could tax your gifts from Christmas raffles, Secret Santa, and White Elephant. Here’s how.
-
New Mexico Small Business Saturday Tax Holiday 2024Tax Holiday Here's how you can save on taxes during New Mexico’s Small Business Saturday.
-
Holiday Shopping Tax Tips for Business OwnersTax Deductions Before hitting the sales, businesses should know these key deductions and look out for overspending.
-
Tax Credit vs. Tax Deduction: What’s the Difference?Tax Breaks Your guide to tax deductions and credits, how the IRS treats them differently, and how they impact your tax bill.
-
Premium Tax Credit: Are You Eligible For This Health Insurance Tax Break?Tax Credits The tax credit can help qualifying individuals pay for coverage from the Affordable Care Act’s health insurance marketplace.
-
FSA Contribution Limits Are Higher for 2025FSA A flexible spending account allows you to build tax-free savings for certain medical expenses.
