The Internal Revenue Service’s recent ruling that employers can help their employees pay back student loans was made in response to the tripling of American student loan debt over the last decade. Employers’ eyes were opened wide to the fact that their employees are in need of some help when it came to paying back student loans. The ruling gives employees the power to link the amount they are paying to their employee’s 401(k) contributions, to the debt repayment amounts being made by the employee to their student loan.
Most employees are eligible for the employer-match student loan contributions, but it is not mandatory. An employee will only benefit from the ruling if they choose to participate. In terms of cost to the employer, it is described as ‘cost neutral’ as loan repayment amounts applied would equal the same amounts had the employee contributed directly to their 401(k) within the plan.
Boston College Research
In additional support of the recent IRS ruling comes the Boston College Center for Retirement’s Research reporting that post-secondary graduates with student debt amass 50-percent less retirement funds in their 401(k)s. The research suggests that the recent ruling and employer/employee student loan repayment match contributions should provide this group with a better 401(k) balance.
This step towards improving the retirement savings of college graduates is a positive move in the direction of higher standards of living for future retirees. There has, however, been some concern over whether this option should be made mandatory, to ensure that its full benefit will be felt by those who need it most. This new ruling and amendment to 401(k) planning allows workers to not only make contributions to retirement plan savings, but to also not pay taxes on student debt repayment contributions. This ruling is a positive alternative for employers who want to provide additional help to employees with high student debt.
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