Everything You Need to Know About The New 401(k) Student Loan Match Program

It has been a gracious three years for students as their loan payments were put on hold. However, the freeze has ended as student loans resumed in October 2023. But things have changed significantly since the pause began.

One of the notable changes is the opportunity to receive a 401(k) match for student loan payments. What does this mean, and who can take advantage of this fantastic perk? We will provide answers to these questions and more in the following article.

How Does it Work?

A student loan 401(k) match allows companies to combine student loan repayment with contributions to a traditional 401(k) plan.

An employee must make qualified student loan payments for higher education expenses to be eligible. Additionally, the employer must offer a qualifying retirement account and a student loan matching contribution program – 401(k), 403(b), SIMPLE IRA, or 457(b) plan. The employer can determine the specific structure of the 401(k) matching plan based on their discretion and the details of their retirement plan. Employees can choose how much they wish to match. 

Who Is Eligible?

With the implementation of SECURE 2.0, the Internal Revenue Service (IRS) has allowed all employers to provide matching contributions to their eligible employees' 401(k)s.

For employees, matching contributions can only be made when an employee makes a payment towards a qualified student loan. This refers to a payment made by the employee to repay a qualified education loan that was taken to cover qualified higher education expenses.

When Can This Begin?

This new feature will be implemented for plan years starting after December 31, 2024. For plans with a calendar year plan year, this means it cannot be implemented before January 1, 2025. The IRS will likely issue regulations to clarify these rules closer to the effective date. 

Is This a Good Fit For My Company?

This program can be a win-win for employees and employers as it benefits employees actively paying off student loan debt and employers who want to recruit and retain those employees. For many employees, stashing away money for retirement and simultaneously paying off student loan debt is nearly impossible. By offering this benefit, a company enables employees to save for retirement, reduce debt, and free up a significant portion of their paycheck to meet unexpected expenses.