The recently signed Secure 2.0 Act will allow employers to count student loan payments against the corresponding 401(k) retirement contributions.
Last week, President Joe Biden has signed the Secure 2.0 law into law, which not only created changes to retirement savings plans, but also impacted student loan repayments.
From 2024, the Secure 2.0 The law will allow employers to provide their employees with 401(k) contribution matches based on their workers’ student loan payments. In other words, student loan payments can be treated as optional deferrals or 401(k) employee contributions and therefore applicable to a company’s matching policies.
The rules governing company 401(k) matches vary between different plans. But a company usually matches a percentage of an employee’s contributions up to a maximum amount per year.
For example, some companies may match 50 cents for every $1 employee contributing to their 401(k) up to 6% of their salaries. So, for people earning $60,000 a year, 6% of their salary equals $3,600. If they earn that much in student loan repayments each year, their employers will now be able to invest $1,800 in their 401(k) accounts.
The law allows companies to make matching 401(k) contributions based on employees’ student loan repayments, even if workers don’t contribute directly to their own 401(k) plans.
If student loan debt is preventing you from saving for retirement, consider refinancing your private student loans at a lower interest rate. Visit Credible to get your personalized rate in minutes without affecting your credit score.
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State of the student loan crisis
Student loan debt is a burden for many Americans and totaled more than $1.6 trillion as of September 2022, according to Council on Foreign Relations data.
The average student loan payment is estimated at $460, according to EducationData.org. For many, these payments can prevent them from saving for retirement or investing as much as they can in retirement savings.
In fact, 84% of American adults said student loans negatively impact the amount they can save for retirement, according to research sponsored by TIAA and conducted by MIT AgeLab.
“When you know you should be saving for retirement but you’re in debt, it might feel like a choice,” TJ Donovan, executive director of Morgan Stanley at Work, said in a statement.
However, the Secure 2.0 Act could make it easier for Americans repaying student loans to have retirement savings funds thanks to help from their employers.
“Section 110 is intended to help employees who may not be able to save for retirement because they are overwhelmed with student debt and therefore miss out on the matching contributions available for plans. retirement,” says the Secure 2.0 Act brief.
If you’re having trouble saving for retirement because of student debt, consider refinancing at a lower interest rate to lower your monthly payments. Visit Credible to compare loans from different lenders without affecting your credit score.
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Summary of Security 2.0
The Secure 2.0 Act follows the Secure Act, which was signed into law in 2019. Secure 2.0 is designed to make other significant changes to the pension plan system.
Here are some highlights of Secure 2.0
- The minimum age required for distribution (RMD) will increase to 73 years, then to 75 years in 2033.
- Catch-up contributions to most workplace pension plans will increase to $10,000 for employees aged 60 to 63, starting in 2025.
- Automatic enrollment in 401(k) and other workplace retirement plans would become a requirement starting in 2025.
- Part-time employees who have worked for at least two consecutive years with at least 500 hours of annual service will be able to enroll in their employer’s 401(k) plans.
The Secure Act 2.0 is part of the $1.7 trillion omnibus spending package that passed in late 2022.
“The adoption of SECURE 2.0 is an important step in increasing Americans’ ability to improve their financial security,” Maurice Perkins, chief corporate officer of Transamerica, said in a statement. “We have long been strong advocates of policies that help working Americans increase their retirement savings and financial health. Transamerica leaders have worked with Congress and strongly supported bipartisan legislative efforts to make savings -easier and more efficient retirement for employers and their employees.”
If student loan repayments are getting in the way of your retirement savings strategy, you might consider refinancing your private student loans at a lower rate. You can visit Credible to see if this option is right for you..
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