SECURE 2.0 Act Allows Student Loan Borrowers To Save For Retirement and Pay Down Loans
401(k) Plans Financial Planning Regulatory Updates
Key Takeaways
- Companies that offer a qualified private retirement plan through their workplace, and employ matching contributions to their employees, will be able to match employer contributions to their plan participants' student loan repayments.
- SECURE 2.0 Act will consider payments made on student loans, to be the same as usual retirement plan contributions.
As student loan repayments resumed this month, they may not be the nail in the coffin that would have sent us into a recession, like most expected.
Why is that?
Because young adults' consumer spending has been propping up the economy the last three quarters; likewise, young adults are more likely to feel the budgetary sting of loan payments resuming. Interest rate rises don't have the same effect that they once did, because most young adult consumers do not have mortgages (what would/ should be their biggest expense variable), so the loan payments will likely take away from their savings and overall consumer spending.
Surprisingly, the federal government anticipated the resumption of student loan payments would require a mechanism so that borrowers could pay down their loans and still save for retirement.
Forbes put out an article that eloquently exemplified the SECURE 2.0 Act's provision, "if you contribute three percent of your income to your 401(k), your company will match that with another three percent from company funds. The changes brought in by the SECURE 2.0 Act will count payments made on student loans the same as retirement contributions allowing companies to provide matching funds into retirement accounts when their employee makes loan payments."
Currently, there is more than $1.7B in outstanding student loans, and the average borrower owes around $37K- so anyone can see how this might have had a negative impact on saving, especially saving for retirement.
Hence, employers should offer a qualified workplace retirement plan, match contributions, and opt-out of the state sponsored auto-IRA programs that don't allow employer matching. That is, if they want to attract top-talent.
Thanks to the most recent U.S. Department of Labor in 2021, we know that the average employer contribution was equivalent to around 5.6% of a worker's wages. And that the Plan Sponsor Council of America found, "most employers made contributions to accounts during the year, with 13% raising profit-sharing contributions and 5% increasing the matches they provide."
More employers offering retirement plans, more employers matching contributions, and the ability for student loan borrowers to pay down their loans and still save for retirement...
Millennials and Gen Z: "Did I just get saved?" - Easy A
Read full Forbes article: https://www.forbes.com/sites/e...