WealthRabbit Support

What are the student loan payment changes under SECURE 2.0 Act, and how does it work?

The SECURE 2.0 Act introduced a significant change that helps employees who are repaying student loans save for retirement. Under this new rule, employees can receive employer matching contributions to their SIMPLE IRA based on the amount they’re paying toward student loans.

What Was the Rule Before the SECURE 2.0 Act?

Before the SECURE 2.0 Act, the only way employees could receive employer matching contributions to their SIMPLE IRA was if they made direct contributions to the account. In other words, if you were focused on repaying student loans and couldn't afford to contribute to your IRA, you were missing out on employer matches for your retirement savings.

How Does the New Rule Work?

Now, if you’re making student loan payments, your employer can match those payments as if they were contributions to your SIMPLE IRA. This means that even if you're not putting money directly into your retirement account, you can still benefit from your employer’s matching contributions, helping you grow your retirement savings.

Example:

Let’s break this down using a practical example:

• John’s Salary: $50,000 per year

• John’s Contributions:

  • 1% to SIMPLE IRA: $500 

  • 3% to Student Loan = $1,500

John’s employer offers dollar-for-dollar matching contributions to his SIMPLE IRA.

Scenario 1: If John’s employer has not adopted the SECURE 2.0 provision

• Only John's 1% SIMPLE IRA contribution ($500) is eligible for matching.

• The employer matches just $500.

• John misses out on the $1,500 match for his student loan payments.

Scenario 2: If John’s employer has adopted the SECURE 2.0 provision

•  John’s 3% student loan payment (which equals $1,500) counts as if it were a contribution to his SIMPLE IRA. 

• His employer provides a matching contribution of $1,500 to his SIMPLE IRA.

• Combined with his own $500 IRA contribution, John’s total retirement savings for the year is $2,000.