Secure Act 2.0 and Student Loans
I understand that not many people are in the position to be thinking about retirement, but it's worth a note to check and see whether your workplace could be one of the companies who decide to contribute employer match contributions because you've decided to make payments on your student loans. Here's the original link on the IRS website.
IR-2024-217, Aug. 19, 2024 — The Internal Revenue Service today issued interim guidance for sponsors of 401(k) and similar retirement plans
IR-2024-217, Aug. 19, 2024
WASHINGTON — The Internal Revenue Service today issued interim guidance for sponsors of 401(k) and similar retirement plans that provide, or wish to provide, matching contributions based on eligible student loan payments made by their participating employees.
Notice 2024-63 PDF, posted today on IRS.gov, implements section 110 of the SECURE 2.0 Act of 2022, which for the first time permits employers to provide matching contributions for employees based on their payments on student loans.
The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.
Using a question-and-answer format that includes several illustrative examples, the notice addresses a variety of plan-administration issues. Among other issues, the notice addresses:
General student loan matching contribution eligibility rules (including dollar and timing limitations).
What is required for an employee certification that student loan matching contribution requirements have been met.
Reasonable student loan matching contribution procedures that a plan may adopt.
Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.
The notice applies for plan years beginning after Dec. 31, 2024. In the notice, the IRS said it plans to issue proposed regulations providing further guidance on section 110, but that plan sponsors may rely on the notice until the proposed regulations are issued.
The IRS welcomes public comments on this notice, which provides details on how to submit comments.
I'll pause here -
I'll use my workplace as an example. They use Fidelity Investments, which is the recordkeeper of my company's 401k plan.
I called Fidelity, and asked them how this all works. The representative informed me that I'll be making the payments on my loan servicer's platform, ie. the website, and I'll have to upload the documents for proof of payment on to my account with Fidelity.
My company has to do an annual compliance testing, so after 2025 ends, they're going to take the record of payments I've made, and calculate their employer contributions (which is known as a Safe Harbor match in my case).
The employer contribution cannot exceed 6% of my compensation, aka my salary/wages. Say I have $30,000.00 in student loans, but 6% of my yearly compensation is $600.00 then they will only match me on $600.00.
The most my company will match is 6%, but every company will be different with their 401k plan. Not every 401k plan will have a match, and not every 401k plan will be a Safe Harbor match.
If you're not sure how your company's 401k works, go to your account and download your 401k plan's Summary Plan Description.
Also, the Secure Act 2.0 requires some plans to automatically enroll their employees into participating in the 401k plan, so if you're not ready to contribute part of your wages, aka paycheck, to your 401k plan, make sure you call the recordkeeper, or HR or business owner, and figure out how to opt-out.
