January 25, 2024
I have some very good news for anyone who is finding it hard to juggle paying back federal student loans and simultaneously saving for retirement. Beginning in 2024, making student loan payments could help you build retirement savings if you have a workplace retirement plan that makes a matching contribution.
You know all about how employer matching contributions work with your retirement plan. When you make a contribution to your retirement plan at work, your employer agrees to make a matching contribution.
That’s a great deal, but it can be hard for young adults who are just starting out in their careers to commit money to pay back their student loans and contribute to their workplace retirement plan.
Starting this year, your plan can make that matching contribution into your workplace retirement plan for employees paying back student loans, even if that worker doesn’t make his or her own contribution to the retirement plan. The new rule effectively allows the employer matching contribution to kick in based on an employee’s student loan repayments.
For example, let’s say you make $4,000 in federal student loan repayments, and you are eligible for a workplace retirement plan that offers a matching contribution. And just to keep this simple, let’s assume the matching contribution would be 50%. Under the normal rules, you would need to contribute $4,000 to your workplace retirement plan to qualify for a $2,000 matching contribution from your employer.
With this new rule, you could get the $2,000 match without making a contribution yourself: your $4,000 student loan repayment would qualify you for the company contribution to your retirement fund, regardless of whether you contribute any of your salary into the retirement fund.
Basically, employers can match student loan repayments—following whatever matching formula the plan uses—with a contribution to that employee’s retirement plan.
I want to be very clear: It is my hope that everyone can manage to contribute to their retirement plans when they are young, and not just rely on a company match. Dollars you save in your 20s and 30s will have decades to grow and are more valuable than dollars you manage to save in your 40s, 50s, and 60s. When you are in your 20s, contributing at least 10% of your salary—the combination of your contributions and the employer match—will put you on a great path to a secure retirement.
That said, anyone who can’t yet manage the juggle of paying back student loans while simultaneously contributing to their workplace retirement plan may now be able to build up retirement savings based solely on employer-matching contributions.
The rule is so new, it’s likely your employer hasn’t yet added this new benefit to the retirement plan. Don’t just wait. I encourage you and your fellow student-loan borrower colleagues to lobby human resources to make it a priority to add this valuable feature to the retirement plan.