Welcome to inquire about an Adviser, EBN's new weekly column in which benefit brokers and advisers answer (anonymous) questions sent by our readers. Looking for expert advice? Please submit the questions you have to [email protected].
This week, we asked Robin Powell, Benefits Consultant at Strategic Benefits Advisors, to comment on the next: I've heard that 401 (k) plans may be used to help employees pay off student education loans. How it really works?
With the price of educational costs rising two times as fast as inflation since the late 1980s, it's no wonder student loan debts are also growing – rapidly.
According towards the Fed, that collective bill stood at $ 1.64 trillion after the 2nd quarter of 2022. It's a staggering figure that does not only affects debt holders, but tend to ultimately threaten Americans in general. if escalating default rates trigger our next economic crisis.
Additionally, 25 percent of people cited student debt because the reason they are not saving for retirement. Young adults typically say they'll begin saving for retirement after paying off their student education loans, however when they get wed and have children, student loan debt and retirement funds are even higher.
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Fortunately, hope is coming. Congress happens to be considering two bipartisan bills – one out of the home and something within the Senate – each containing a provision that will allow employees to settle their student loans while saving for retirement at the same time. The key to a healthy retirement is to begin saving early enough to consider benefit of compound interest. What might be better than paying down debt and saving at the same time?
In a nutshell, if any of these bills are passed, what the law states would give employers the opportunity to match employees' qualified education loan payments with 401 (k) contributions. Here's how it works: If the employee constitutes a student loan payment of, say, $ 300, the business will match that employee's 401 (k) plan with Three hundred dollars. The employee doesn't have to contribute straight to the 401 (k) plan to receive the employer match. If either bill passes (or both!), Rules could be issued to guide employers and employees on the workings of the new law.
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This kind of legislation is a vital step towards reducing loan debt while helping employees save for retirement. More great news? Employers who want to offer this method to employees may not even need to wait. In 2022, the government issued a personal letter decision that enables the submitting employer to voluntarily offer matching 401 (k) contributions for qualified student loan payments. By being among the first to consider and providing the benefits permitted through the private letter decision, companies can obtain a recruiting advantage over their competitors. Since one-third of adults between 18 and 29 have student loan debt, a job offer that includes a student loan could be a deciding factor for any candidate.