IRS Ruling Could Open Door For Employees To Match Student Loan Payments Into 401(k)s

Americans paying off student loan debt now have a new way to add to their 401(k) retirement savings.

What Happened?

A new private letter ruling by the IRS suggests the agency may be open to employers matching employee student loan payments with contributions to their 401(k), according to Forbes. 

Why It’s Important

The rule could allow Americans who are too burdened with student debt payments to contribute to their 401K on their own to continue to pay down student debt while their employers contribute to their retirement fund.

Americans have $1.4 trillion in outstanding student debt, making student loans the single largest source of debt outside of the housing market. Total outstanding auto debt is $1.2 trillion and outstanding credit card debt totals $800 billion.

A recent Pew study found that only 52 percent of millennial workers are participating in employer-sponsored retirement plans, and student loan payments could be playing a large role in that lack of participation.

Under the plan approved by the IRS, American workers using at least 2 percent of their eligible pay for student loan payments could have their employers make a matching 401K contribution of 5 percent of their eligible pay.

Employees with no student debt will not be impacted by the ruling.

What’s Next?

It’s important to note that the IRS ruling is applicable only to the specific company that made the request for the exact plan outlined above. Americans will be watching for other companies to follow suit in requesting IRS permission for similar plans, and employees may start requesting that their own companies make similar proposals.

With so many Americans burdened by student loan debt, a trend toward student loan 401K matching could have a significant impact on American employers, students and lenders.

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