IRS ruling allows 401(k) student loan benefits

[thedigitalone]

https://www.marketwatch.com/story/irs-ruling-allows-401k-student-loan-benefits-2018-08-27

Sounds like they will allow employers to use student loan payments as a matching contribution into the employees 401K.

[patchyfacialhair]

I think it's a wonderful idea. For the folks that aren't contributing to 401k because of too much student debt, they now will have at least a little bit added to their retirement account by their employer while the employee pays down their debt.

[ixtap]

I don't see how it can be considered to be cost neutral to the employer if it means that more employees are contributing or those who are participating are getting more.

The only way it could be cost neutral is if people started contributing *less* to their 401ks because now their student loan payment also counts for matching.

So great if it gets people saving, but by what this article says, it doesn't actually seem like that is the expected outcome.

[therethere]

I think it will be counterproductive to encouraging personal ownership of retirement savings.  The 401k match "free money" is what gets most people aware of 401ks. By attaching the match to debt repayment you're not encouraging saving anymore. The onus on retirement savings is pushed back on the employer versus the employee (exact opposite of where US has been heading). I can picture someone being naively happy they've been "saving" for retirement, but in reality it's just the tiny 3% the employer puts in. So accounts are drastically underfunded while the public thinks they're ahead of the game. The threshold for getting a match is usually low (3-4% of salary) and pretty obtainable for just about anyone. You should be able to contribute enough to a 401k to get the match AND pay down debt (although slightly slower pace). It also encourages using critical thinking (dare I say math?) to evaluate cost-benefit. Saving 10%+ taxes on money and getting a match is almost always mathematically better than straight paying down student loan debt. This sounds like something that's getting passed just to make people feel better that will have almost no real impact.

[simonsez]

I think it will be counterproductive to encouraging personal ownership of retirement savings.  The 401k match "free money" is what gets most people aware of 401ks. By attaching the match to debt repayment you're not encouraging saving anymore. The onus on retirement savings is pushed back on the employer versus the employee (exact opposite of where US has been heading). I can picture someone being naively happy they've been "saving" for retirement, but in reality it's just the tiny 3% the employer puts in. So accounts are drastically underfunded while the public thinks they're ahead of the game. The threshold for getting a match is usually low (3-4% of salary) and pretty obtainable for just about anyone. You should be able to contribute enough to a 401k to get the match AND pay down debt (although slightly slower pace). It also encourages using critical thinking (dare I say math?) to evaluate cost-benefit. Saving 10%+ taxes on money and getting a match is almost always mathematically better than straight paying down student loan debt. This sounds like something that's getting passed just to make people feel better that will have almost no real impact.

I disagree, depending on how the loan payback works.

Not everyone even maxes out their matched money now!  One of the big reasons listed is because they don't have enough take home pay for bills.  Something that goes into a 401k is money that (hopefully) can't be touched for a long time.  If those dollars are now being used to pay student loans and it lessens the monthly required amount from someone's take home pay - then I would think it would be better from a cash flow perspective and thus encourage those with student loans to make the most of saving for retirement.

How is that discouraging to saving?  If someone put in 5% to get a 5% match and now that match is optionally replaced with student loan payback, why would someone all of a sudden drop below 5%, especially now that one of their major bills is being partially or wholly paid?  Now, they're only hurting themselves with the amount of money their employer will throw at their loan.  I don't follow that nor your logic about taxes.  I don't get a tax break on what my employer matches to my 401k.  At worst, it seems neutral with respect to saving for retirement.

[GetItRight]

Meh, an actually meaningful step would be to not tax any income spent on education. In the years I was paying over $2k/mo on student loans that would have allowed me to pay significantly more towards student loans rather than lining other people's pockets with my tax dollars. Instead government drives up the cost of college, decreases the value of college degrees, and doesn't even give a tax break for the significant costs incurred by the masses from their meddling in higher education. Regardless, through that whole time I always contributed just enough to maximize the 401k match. Many times I debated cutting back or eliminating 401k contributions to pay off student loan debt faster but the numbers didn't really work for that to make an appreciable difference in payoff time. Optimizing other aspects of my finances and keeping side gigs going made a much bigger contribution to paying off student loans.

[therethere]

Maybe I read the article wrong. I thought it was saying that if you paid xx% of your salary (whatever the match requirement was) to student loans then you would get the match in your 401k. Was it saying you get the match as a bonus student loan payment? This only proves my point that making things more convoluted is not empowering people. Just another feel good no difference type of bill.

My point on taxes is people should be doing the math on student loan repayment v. investing v. a house v. 401k. With the way 401k matching is done by most companies, the numbers very well favor contributing to a 401k above paying down loans.