401(k) Student Loan Match?
The last five years have included all kinds of changes to rules, laws and options with different financial accounts. For example, a loosening of rules around 529 plans, commonly used for education funding, can now be rolled over into a Roth IRA as long as certain rules are followed.
Another of these has to do with student loans and 401(k) matching programs. This one is a bit out of left field since employer 401(k) plans and their matching component have nothing to do with student loans.
So what is this rule, how does it work and are people taking advantage?
Many have to decide between funding a retirement or paying off student loans. Limited funds create this type of situation for far too many. For some financial personalities their response is to shame you and tell you that you got into this so get yourself out. That is not helpful and not reality. What is helpful is trying to build access to resources and offering actual solutions.
That is what I believe is happening with this current change. Most employer sponsored retirement plans are funded based on you contributing and that gets you a match. If you put in 5% of your earnings, your employer will do the same. Each plan is different so check out the specifics on yours. But, if you don’t contribute because you have student loan debt you miss out on the match. This new program fixes that and states that you can use your student loan repayments as the item that triggers an employer match. This helps people not miss out, which is a great thing.
A recent Bloomberg article highlights this but also why it’s not being used.
One issue is the logistics of validating payments to get the match. Employers have it easier when they are the ones cutting your paycheck. They know how many hours you worked and what you are paid. For the student loan payment, it creates haste and challenging accounting and record keeping given the IRS rules.
A second issue has to do with student loan forgiveness. I am one that believes a solution to what has happened since 1980 needs to be figured out between the citizens, the government, the universities that got the $1.74 Trillion and the loan providers. Many people are simply waiting for a solution and do not want to pay them back only to be told they are forgiven or there is financial relief.
All of this highlights that we live in a complex economy where things are shifting and it can be confusing what to do. If you have loans that you are paying instead of contributing to get a match, see if your employer is aware of this and how your plan provider is set up to help.
Here is a link to the original article.
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan