Here's how SECURE 2.0 helps student loan borrowers save for retirement

Borrowers now have a chance to use their student loan payments to contribute to their retirement accounts under a voluntary provision of the SECURE 2.0 Act that recently took effect.

To take advantage, employees should ask their employer if they have opted in.

Section 110 of the SECURE 2.0 Act allows employers to provide retirement plan matching for qualified student loan payments.

For borrowers, that means payments they make on their student loans count toward their company’s matching contributions to 401(k), 403(b), or SIMPLE IRA plans — even if they aren’t currently contributing themselves. The provision is optional and took effect in January.

It allows those with student loan debt a new way to save for retirement and gives employers a new retention tool and a perk for recruiting new talent.

Read more: Retirement planning: A step-by-step guide

Around 67% of graduates with student loans said the debt prevents them from contributing to things like a retirement plan, according to a Fidelity study.

"Student debt is a barrier that prevents so many Americans from participating in important life milestones — particularly saving for retirement," Jesse Moore, senior vice president and head of student debt at Fidelity Investments, said in a press release. "The introduction of a retirement-focused student debt benefit is a game-changing step forward for the benefits industry that will help millions on their path toward financial wellness and mobility."

One in 10 employees over 45 has student loan debt, and 61% agree repayment has negatively impacted their financial stability, according to a Nationwide survey, with 66% noting repayment will significantly affect their ability to save for retirement.

Around 67% of employers already offer or plan to offer the matching qualified student loan payment provision, according to a survey by the Employee Research Benefits Institute (ERBI).

Read more: Tips and tricks for quickly paying off student loans

How it works

The new provision means that borrowers can count their monthly student loan payments toward their company’s 401(k) if they offer matching contributions.

"For example, if an employee has a $300 monthly student loan payment and can’t afford 401(k) contributions, the student loan payments are treated as 401(k) contributions," Ross Solverud, retirement plan compliance leader at Sentry Insurance, previously told Yahoo Finance. "As of 2024, employers have the option to ‘match’ student loan payments as if the loan payments were 401(k) contributions."

But the new option isn’t limited to employees who haven’t made contributions. If an employee isn’t maximizing their full match due to student loan payments, they could also benefit from the provision.

"If an employee has a salary of $60,000 with a 5% match on 401(k) contributions but only contributes 3% due to $600 a month in student loan payments, they are leaving 2% or $1,200 on the table," Eric Stevenson, president of Nationwide Retirement Solutions, previously told Yahoo Finance. "With the SECURE 2.0 provision, they’ll be able to use their student loan payments towards the 2% to get the full 5% match."

Qualified student loans include private or federal loans, so long as they were incurred by the employee for qualified higher education expenses of the employee, which is typically considered the cost of attendance like tuition, room and board, books, and fees.

If your employer offers a matching retirement plan, it is important to ask your human resources or employee benefits office if they plan to offer the new option.

"We never want to leave an employer match on the table, and qualified student loan payments should be no different," Jim Mahaney, a certified financial planner at Mavericus Retirement Services LLC, told Yahoo Finance.

Ronda Lee is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on X @writesronda

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