You may no longer have to choose between paying off student loans and saving for retirement.
A provision in Secure 2.0, a retirement law that went into effect this year, allows workers to receive a retirement account match from their employer for making payments towards their student debt.
The rule could help roughly a third of the about 42 million student loan borrowers who currently have retirement accounts.
It is yet to be implemented widely, however, and it’s unclear how commonly offered it will be — though some experts say it could be attractive to employers looking to attract and and retain talent.
How the 401(k) Match For Student Loan Payments Works
Secure 2.0 “permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to ‘qualified student loan payments.’”
This is intended to help employees who had to choose between repaying student loans and making retirement contributions to their workplace plans, potentially missing out on matching contributions from their employer.
Under the new rule, an employee may be eligible to receive the matching contribution stated in their retirement benefits even if they’re unable to meet their employer-sponsored plans’ matching requirements.
Research from JPMorgan found that once student loan payments kicked in, one-quarter of borrowers reduced their average retirement contributions by a median of 2.7%.
Among people making $55,000 or more, JPMorgan said, 401(k) balances were “significantly” higher for those who weren’t making student loan payments.
Employer matches that offset loan repayments will likely help employees accumulate the same amount in retirement savings as they would’ve without the debt, researchers found.
The ability to claim a match without making the required contributions could free up money that could be spent on other expenses, according to Olivia Mitchell, a professor at the University of Pennsylvania who has studied the benefit, while still building a cushion for retirement.
Unlikely to Be Widely Offered — But Potentially Beneficial
The offering could be attractive to potential employees, according to Mitchell. “Offering this benefit will cost employers more than they paid pre-reform, but the new benefit is likely to contribute to better employee attraction and retention, which of course helps save costs,” she said.
Still, many believe it won’t be adopted quickly. In a 2024 survey from Alight, a retirement record-keeper, only 10% of 87 organizations said that they were likely to add this benefit. Nearly 40% reported that they were unsure if they’d ever offer it.
“As to what the prevalence of this is going to be, that’s hard to say because the employer has to opt into this and then the employees have to as well,” said Mark Kantrowitz, financial aid expert and author of “How to Appeal for More College Financial Aid.”
The IRS recently released guidance for employers on how the new provision works, detailing information on how employees can certify their student loan payments and what types of student loans and retirement plans qualify.
Employees who want to receive the matching retirement plan contributions must certify certain information with their employer, such the loan payment amounts and dates of the payments, according to Kantrowitz.
Katie Brewer, a CFP and founder of Your Richest Life, thinks it could be a few years before employers start offering the benefit.
“We may see it popping up, but I don’t think it’s going to be immediate,” Brewer said.
