IRS Ruling Allows Company To Match Employees' Student Loan Payments Into Their 401(k)

IRS Ruling Allows Company To Match Employees' Student Loan Payments Into Their 401(k)

A recent ruling by the IRS allows employers to link their employees’ 401(k) contributions, under certain circumstances, to student loan repayments (SLR) being made to an outside plan.

This program is voluntary, and employees can elect to enroll and choose when they want to opt out on a prospective basis. If an employee makes a SLR of at least 2% of their eligible compensation for the pay period, then the employer will make an SLR contribution to the retirement plan of at least 5% at the end of the plan year. In order for the employee to receive the employer’s contribution they need to be employed until the last day of the plan.

The program is designed to be cost-neutral for the employer as their contribution is equal to what the employee contributed directly to the plan. This is a valuable program for those who are burdened by their student debt and are not taking advantage of their 401(k) plan. A recent study conducted at Boston College found no correlation between student debt and participation in 401(k) plans. They found that “college graduates with student debt accumulate 50% less retirement wealth in their 401(k) by age 30 than those without”. 

https://www.marketwatch.com/story/irs-ruling-allows-401k-student-loan-benefits-2018-08-27

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