How the 401(k) Student Loan Match Works

In the past, many employees have had to choose between saving for retirement or making student loan payments. Because student loans often have high payments, it’s difficult for many to afford both. 

Recent legislation aims to make it easier to pay down student debt while building retirement savings, and it could help if you’ve been struggling with this issue. Here’s what to know about the student loan 401(k) match program, how it works, its benefits, and more.  

What is the student loan 401(k) match program?

The student loan 401(k) match is a provision in the Secure 2.0 Act of 2022. The Act contains several provisions related to retirement savings, including many designed to help people nearing retirement. But the student loan 401(k) provision aims to help anyone with student debt.

Starting in 2024, employers offering select retirement plans can elect to make matching contributions to employee accounts. Eligible plans include:

• 401(k)s
• 403(b)s
• 457(b)s
• SIMPLE IRAs

Matching contributions have been around for a while, but the new legislation allows employers to “match” student loan payment amounts as 401(k) contributions. This makes it easier for those burdened by student loans to make payments and build a retirement nest egg.   

How does the student loan 401(k) match work?

This matching program lets employers match their employees’ student loan payments, even if those employees aren’t contributing to their retirement accounts. This gives employees an added incentive to continue making their student loan payments, which can help boost their 401(k), 403(b), 457(b), or SIMPLE IRA savings. 

The program is elective, meaning employers can decide whether to offer this benefit. But several major companies have implemented this match, including LMVH, Sephora, and News Corp.

The 401(k) student loan match provision says employers offering a traditional contribution match benefit can elect to offer the same benefit for borrowers paying down qualified federal or private student loans. So if an employer matches employee 401(k) contributions up to 5%, dollar for dollar, they’d offer the same match for student loan payments. Here’s an example of how this could work, assuming a generous 5% dollar-for-dollar match:

Sam earns $75,000 annually and pays $312.50 each month toward his student loans, totaling $3,750 for the year. His employer elects to match his payments each month, contributing $312.50 per month to his 401(k), for a total of $3,750 per year. 

Matching contribution amounts will vary by company but are often 3% to 6% of an employee’s salary up to the retirement account’s contribution limit. Employers may elect to match dollar for dollar or 50% on the dollar. Again, it differs by company.

How do you enroll in the 401(k) student loan match program? 

As we mentioned, the matching program is elective, which means employers aren’t required to participate. And since the program is newer and could be expensive for employers, companies might be slow to adopt it. Despite this, it’s worth confirming whether your company participates. Reach out to your employer’s human resources department to confirm. 

If your company offers this benefit, discuss the process of enrolling with a human resources representative. To qualify, you’ll need to be making qualified student loan payments, or payments toward federal or private student loans you used to pay for college at an eligible school. You’ll likely need to provide copies of your loan statements to your employer to verify student loan payment amounts each year. 

Read More

Should You Pay Off Student Loans With Your 401(k)? 

Benefits of the 401(k) student match

The 401(k) student loan match can benefit employees and employers. Here’s a look at the benefits for each:

For employees

• Simultaneous savings: The biggest benefit of the 401(k) student match is letting employees save for retirement while paying down student loans. In the past, doing both at the same time was difficult for many, if not impossible. 
• Matching even if you aren’t contributing: If your company participates, the match will be equivalent to the matching benefit provided to employees who aren’t paying student loans. This is true even if you’re not contributing to your employer-sponsored retirement plan. 

For employers

• Attractive perk: This benefit could attract top candidates burdened by student loan debt and help companies retain employees over time. 
• Tax advantages: As with other types of employer matches, student loan payment matches are tax-deductible for companies. Implementing this program could result in significant tax savings for your employer.

Are there any downsides to enrolling in a 401(k) student loan match program?

Participating in a 401(k) student loan match program has a couple of minor downsides, but the benefits likely outweigh the drawbacks.

• Additional paperwork: You’ll need to verify that you’re making qualified student loan payments each year, which will likely mean providing your employer a copy of your loan statements.
• No tax advantages: Contributions to a traditional 401(k) reduce your taxable income for a given year. If your company matches your student loan payments with retirement savings contributions, the employer contributions won’t give you any tax advantages. 

The biggest disadvantage for employers is that implementing and administering a program like this can take time, so they might need to overcome a few hurdles. 

What if your company doesn’t offer a 401(k) match program? 

If your company doesn’t offer this benefit yet, consider mentioning it to your manager or the human resources team. Implementing this type of match could help your company attract and retain top talent, and it offers tax advantages for businesses. As we mentioned, employer contributions are tax-deductible for the company. 

Our expert’s advice

Crystal Rau

CFP®

Open the dialogue with your employer or HR department and make them aware that this benefit is available. Many, especially in smaller businesses, aren’t always aware of new legislation. It’s also helpful if you have coworkers in the same situation as you—many may have student loans they’re trying to pay off. If more people are interested, the employer might be more inclined to research further. Take your case to your employer: It’s difficult to pay down student loans and contribute to your 401(k), and there aren’t enough funds to go around. If their goal is to retain you, it may be helpful to let them know what other companies offer this.

Other ways to save for retirement

Saving for retirement isn’t easy, especially if you’re making large monthly payments toward your student loans. Here are a few pieces of general advice that could help you save more, whether your company offers a student loan matching contribution or not. 

• Start early: If possible, start contributing small amounts to your 401(k) or other employer-sponsored retirement plan. Starting early will help increase your chances of building a large nest egg by the time you reach retirement age. 
• Take advantage of employer matches: Even if your employer doesn’t offer a student loan match, it may offer a contribution match. Ask your human resources department about potential matching benefits, and try to contribute as much as your employer will match. Employer matches are like free money, so taking advantage of them is wise.  
• Save your windfalls: Consider opening an individual retirement account (IRA) in addition to your 401(k), and save any windfalls—or a portion of them—there. For instance, if you typically get a decent tax return, you might add that money to your IRA account.
• Increase your contribution amount: As your earnings increase over time, so should your retirement savings contributions. Consider putting a portion or all of your raises and bonuses toward your retirement, depending on your goals. And if you pay off a debt, you may want to add that monthly payment amount to your retirement account.