Can employees pay off student loans and save for retirement? | TSA

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Welcome to Ask an Adviser, EBN’s new weekly column in which benefit brokers and advisers answer (anonymous) questions sent by our readers. Looking for expert advice? Please submit your questions to [email protected].

This week, we asked Robin Powell, Benefits Consultant at Strategic Benefits Advisors, to comment on the following: I’ve heard that 401 (k) plans can be used to help employees pay off student loans. How it works?

With the cost of college tuition rising twice as fast as inflation since the late 1980s, it’s no wonder student loan debt is also growing – rapidly.

According to the Federal Reserve, that collective bill stood at $ 1.64 trillion at the end of the second quarter of 2021. It’s a staggering figure that not only affects debt holders, but could ultimately threaten Americans as a whole. if escalating default rates trigger our next financial crisis.

Additionally, one in four people cited student debt as the reason they are not saving for retirement. Young adults typically say they’ll start saving for retirement after paying off their student loans, but when they get married and have children, student loan debt and retirement savings are even higher.

Read more: LPL brings retirement savings services to small businesses

Fortunately, hope is on the horizon. Congress is currently considering two bipartisan bills – one in the House and one in the Senate – each containing a provision that would allow employees to repay their student loans while saving for retirement at the same time. The key to a healthy retirement is to start saving early enough to take advantage of compound interest. What could be better than paying off debt and saving at the same time?

In a nutshell, if any of these bills are passed, the law would give employers the ability to match employees’ qualified student loan payments with 401 (k) contributions. Here’s how it would work: If an employee makes a student loan payment of, say, $ 300, the employer will match that employee’s 401 (k) plan with $ 300. The employee does not have to contribute directly to the 401 (k) plan to receive the employer match. If either bill passes (or both!), Rules would be issued to guide employers and employees on the workings of the new law.

Read more: Ask an advisor: How can I best help plan members who are about to retire?

This type of legislation is an important step towards reducing loan debt while helping employees save for retirement. More good news? Employers who want to offer this option to employees may not even have to wait. In 2018, the IRS issued a private letter decision that allows the submitting employer to voluntarily offer matching 401 (k) contributions for qualified student loan payments. By being among the first to adopt and offering the benefits permitted by the private letter decision, companies can gain a recruiting advantage over their competitors. Since one-third of adults between the ages of 18 and 29 have student loan debt, a job offer that includes a student loan can be a deciding factor for a candidate.


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