The SECURE 2.0 Act has opened a new door for burdened student loan borrowers by offering a side door to achieving loan payoff and making crucial retirement contributions as soon as possible. But many are still left confused about this new legislation.
Below we’ll unpack the details, but you should consider introducing a financial advisor to your financial strategy for a more in-depth review of how these changes can directly impact your future and financial goals.
The SECURE 2.0 Act Summary
The SECURE 2.0 Act, passed as part of the Biden’s $1.7 trillion omnibus spending bill in December, aims to make a secure retirement more achievable for Americans. In short, it ha options that will help those who struggle with saving for retirement hit their financial goals without having to sacrifice paying off debt or postpone saving for a home. This includes:
Mandatory auto-enrollment into company-sponsored retirement plans
Increase annual catch-up limits for contributors age 50+
Roth matching as a contribution option
Raising the minimum age for compulsory minimum distribution elections
Increase part-time employee participation in retirement savings plans
And of course the hot topic – student loan matching.
What Is the Student Loan Matching Component of the SECURE 2.0 Act?
Student loan matching allows companies to match their employee’s student loan payments with retirement contributions. This is big news since prior to the SECURE 2.0 Act, companies were limited to only offering a match to their employee’s retirement contributions.
Let’s look at an example.
The situation: To give a better visual imagine Dave, a fresh college graduate with student loan debt starts a new job that offers a salary plus benefits. One of the benefits is a 3% company match. Traditionally this match applies to his retirement contribution, so when Dave contributes 3% of his salary to his company-sponsored 401(k), he’s met with an additional 3% from his company.
The problem: When Dave contributes to his 401(k), it puts him in a great spot for retiring on time down the road, but he now can’t afford to save for a house and pay down his student loan debt at the same time. He has to choose one or the other. One leaves him as a prolonged renter spending money on an asset that he’ll never own; the other leaves him extending student loan payoff and accruing additional interest.
The solution: Student loan matching allows his company to match his student loan payments instead of a retirement contribution. So the result looks like this:
Dave is able to pay down his student loans avoiding additional interest charges.
Dave can get a jump start on saving for a home preserving thousands on potential rent.
Dave gets a compounding effect from his company’s retirement plan contributions.
As you can see, this match option has long-reaching potential.
Why Is Student Loan Matching Important?
Effectively saving for retirement has been a longstanding (and growing) issue nationwide, but student loan matching offers a method of solving two problems at the same time.
With student loan matching, companies can contribute to your retirement savings so you still receive the ever-so-important compounding effect while also being able to pay down your student loan debt.
Another way to consider it– the government is putting a much-needed incentive in place that helps student loan borrowers pay down debt faster.
Who Qualifies for Student Loan Matching?
The beneficiary of the student loan is qualified to receive student loan matching from their employer. The details are both vague and intricate but here’s what we know for sure based on the official SECURE 2.0 Act document.
The flow is a bit obscure (as is tax code with the IRS), so here’s a graphic to break it down followed by the text to further explain the web of requirements in detail:
The official text reads “Section 110 permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.”
“Qualified student loan payments” are defined by the IRS as a loan taken out for the sole purpose of paying for a qualified higher education expense for:
– You, your spouse or your dependent when you took out the loan
– Education during an academic period for an eligible student and paid (received) within a reasonable period time before or after you took the loan out.
“Qualified higher education expenses” are defined by the IRS as tuition, fees or other related expenses for an eligible student.
“Eligible student” is defined by the IRS as an individual who is enrolled at least half-time (6 credits) in a program of study leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.
“Eligible expenses” are defined by the IRS as required student activity fees, books or anything that is required to enroll or attend the school.
Eligible Expenses Exclusions For Student Loan Matching?
Expenses that don’t qualify are:
Non-credit courses
Sports
Games
Hobbies
Room & board
Insurance
Medical expenses (including health fees)
Transportation
Can I Still Receive Student Loan Matching If I Didn’t Graduate?
The Secure 2.0 Act doesn’t specify that graduation was required. Only that it be a “qualified student loan payment.” However, this may be up to your employer if you can still participate without completing a degree for the loans you incurred.
Similar programs like Student Loan Forgiveness do not require completion to receive their benefit so it stands to reason that this benefit won’t either.
The Bottom Line
The majority of people that have incurred student loan debt are eligible for the student loan matching program; however, it is up to the employer if you’re offered this as a benefit.
Tips for Retirement
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Want to see if you’ll have enough money for retirement. Use SmartAsset’s retirement calculator.
Photo credit: ©iStock.com/DNY59, Photo credit: ©iStock.com/idealistock
The post The SECURE 2.0 Act & Student Loan Matching: What Is It and Who Qualifies? appeared first on SmartAsset Blog.
You could say he cleaned up.
STOCKSTOWATCHTODAY BLOG Lucid soared Friday, a move that is being attributed to unconfirmed rumors that the company could be acquired. Lucid (LCID) stock started moving just after noon Friday, and had nearly doubled, to $17.
Costco has a very simple business model. It sells memberships in exchange for offering members a low-cost, no-frills shopping experience. People pay in order to access the chain's warehouses. Those membership fees provide a significant portion of the chain's profits, allowing Costco to sell its limited selection of merchandise at a lower markup than its rivals.
Energy inflation remains a serious concern. Protect your portfolio.
While 2022 was a year for stock price corrections across the electric vehicle (EV) sector, 2023 looks to be a transition year for the businesses themselves. Europe and China are leading the way, with fully electric vehicles accounting for 11% and 19% of all new vehicles sold, respectively. With stock prices down and sales continuing to pick up, investors should look at investing in a diverse mix of EV makers in 2023.
The acronym FAANG coined by CNBC host Jim Cramer consists of five companies: (F) Meta Platforms (NASDAQ: META), formerly known as Facebook (A) Amazon (NASDAQ: AMZN) (A) Apple (NASDAQ: AAPL) (N) Netflix (NASDAQ: NFLX) (G) Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), formerly known as Google This group of five large-cap tech companies dominated the market through late 2021, absolutely crushing the S&P 500.
In 2022, investors grappled with the deepest bear market since the global financial crisis in 2008, and the technology sector took the brunt of the pessimism. Cathie Wood's Ark Invest is focused on the technology sector, so it experienced a steep decline in the value of its exchange-traded funds (ETFs). Its flagship Ark Innovation ETF fell a whopping 66% for 2022.
Apple earnings and the Fed meeting loom, but don't sit out a possible "life-changing" market rally. Tesla rival BYD is an aggressive buy.
There's no way around it. You just have to get through it.
The stock market would likely move higher if inflation cools off, but these two stocks could be big winners.
Chip giant Intel (NASDAQ: INTC) is struggling as demand for PC and server chips tumbles. The company saw total revenue crash 32% year over year in the fourth quarter of 2022, and it expects a worse decline in the first quarter of 2023. Intel has already announced a broad cost-cutting initiative to help the company cope with lower demand this year.
Wall Street will be buzzing in the week ahead, as earnings from Big Tech, the Federal Reserve’s first meeting of the year, and the monthly jobs report for January set up the busiest week of the new year.
With January about to conclude, we’ve come off last year’s bearish trend, and seen solid gains over the first month of the year – 6% on the S&P 500, 11% on the tech-oriented NASDAQ – but that doesn’t mean we’re out of the woods. Inflation remains high, the Fed is still raising interest rates, and there’s still plenty of uncertainty about the course of the Russian war in Ukraine, and what China will do as it moves away from COVID lockdowns. So what to do, to find the right stocks for gains? The m
A peak-to-trough decline of 38% for the Nasdaq Composite is an ideal time for opportunistic investors to pounce.
Teladoc Health (NYSE: TDOC) sank 74% last year — and for one particular reason. The telemedicine giant reported two billion-dollar noncash goodwill impairment charges. Both were linked to the acquisition of chronic-care specialist Livongo.
'Because of the 2.5% rate, none of us are interested in selling the house and getting our rates jacked up to 7%.'
How is social security taxed in 2023? Here are the rules used to calculate how much you might owe on your benefits.
It was a busy week for dividend announcements, with the fourth-quarter earnings season in full swing.
Julius Baer of Zurich raised stakes in Intel, Walt Disney, and AT&T stock, and slashed its investment in Advanced Micro Devices in the fourth quarter.
Lucid (LCID) shares soared as much as 88% on Friday and were repeatedly halted for volatility following speculation that Saudi Arabia's Public Investment Fund is considering buying a remaining stake in the luxury electric vehicle startup.