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  • Writer's picturePeter Mu, CFP® ChFC®

SECURE Act 2.0 Allows Employer Match Your Student Loan Payment to Retirement Plans

Congress passed the Consolidated Appropriations Act, 2023 and it is expected to be signed into law by President Biden before end of year. Provision 111 provides that employer can treat an employee's student loan payment as an employee deferral for the purpose of a matching contribution to the retirement plan.

An Employer-sponsored retirement plan such as 401(k), 403(b), 457 etc are popular retirement plans that allows current year deduction against your taxable income. For 2022 each employee is allowed to contribute $20,500 from their income towards such a plan. For persons 50 or older an additional $6,500 "catch-up" contribution is allowed. For 2023, these limits increase to $22,500 and $7,500.

Employer can elect to match an employee's contribution, often o 3 or 4%. Before this Act the employer can only match employee's pre-tax deferral.

For some employees who still have student loan it is often difficult to manage high cost of living, paying down student loans and contributing to retirement. Some have elected to pass on this match and focus on eliminating debt. For those this is great news. Your employer can start a match for the amount you pay to student loans.

Employer relies on the employees to provide evidence of qualified payments. The usual limits of match, income and other eligibility apply as they are written in the retirement plan.

For the employees, doing so does not make your student loan payment deductible.

For employers, plan sponsors and administrators, this provision also spells out that these loan payments are not treated as employee deferrals to the plan and allows the plan to treat all employees who receive employer match to student loan payment in a separate group for the Actual Deferral Percentage (ADP) testing.

Is this good news or bad news?

For those who are struggling with student loans it's a mixed bag of emotions. Numerous federal programs have come and gone over the years promising forgiveness, deferral of payments etc. Many have only witnessed their loans double in balance with promises of federal help stalled in courts. If your employer provides a match to your retirement plan maybe this is finally the time to start tackling the debt?

Effective date: Plan years after December 31, 2023

Applicable plans: 401(k), 403(b) and governmental 457(b) plans and SIMPLE IRAs

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