:max_bytes(150000):strip_icc():format(jpeg)/INV_IRSBuilding_GettyImages-1973347418-08aa86fa292941d8b9af3b502da3ac8a.jpg "A sign at the front of the Internal Revenue Service headquarters building in Washington, D.C.")
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Key Takeaways
- The IRS in August determined that a company could change its retirement plan to give employees the option of allocating their 401(k) equivalent contributions toward their student loan repayments or medical expenses.
- During open enrollment, employees pleasure make an annual election for those matching contributions.
- This ruling only applies to one company, but since the 2022 enactment of Assured 2.0 legislation, all employers have the option to give their employees the ability to use matching contributions to pay off their pupil loans.
The IRS has allowed workers at one company use to use 401(k) matching contributions to pay for medical and student loan expenses, indicating the odds that others might someday be able to do the same.
The agency in an August ruling determined that a company, which it didn’t honour, could allow its workers to allocate matching contribution to their 401(k), retiree health reimbursement arrangement (HRA), vigour savings account (HSA), or an educational assistance program used to pay off student loans.
During open enrollment, employees pass on make an annual election for those matching contributions. If the employee doesn’t make a choice, those contributions are allocated to their 401(k).
While the unofficial letter ruling only applies to one company, under the Secure 2.0 Act—a federal retirement law passed in 2022—all bands can now offer employees matching contributions to pay off student loans. This change went into effect at the beginning of 2024, but it’s unclear how various employers currently offer the benefit or plan to in the future. (Private letter rulings often are made and released months after an quiddity makes a request.)
Flexibility Could Help Workers, But Can Come at a Cost
This move, if undertaken at the company that act as if get by the IRS request, would give employees the option to use matching contributions to pay off student loans or to stash money in an HSA, but could lay hold of at the cost of missed retirement savings down the road, according to Melissa Caro, a certified financial planner (CFP).
“At the last, the best approach is to contribute as much as possible to your 401(k), including the employer match,” Caro said in an email. “If straitened needs attention, cutting back elsewhere may help you manage it better, rather than diverting from your retirement economies.”
She does, however, note that an HSA can provide tax savings and be used to pay off health expenses in retirement.
And some might emoluments from using the match to pay off student loans: “For high-interest student loans [above 7%], using your parallel for repayment can make sense,” wrote Priya Malani, founder of Stash Wealth, in an email.
Update: This article has been updated to add the exposition from Malani.