For a long time, employers and employees have been able to take advantage of a special tax break on tuition and certain types of tuition-related assistance that has offered a boost to companies’ employee benefits programs. One provision under the Secure Act 2.0, which is to take effect, January 1, 2024, allows employers to make matching contributions to an employee’s 401(k), 403(b), 457(b) or SIMPLE employer-sponsored retirement plan if the employee is making student loan payments.
To be eligible for the matching contributions:
- The employee’s loan payments must be for a qualified student loan to pay for higher education costs (tuition, fees, books, expenses). Room and board, non-credit courses and sports expenses are not eligible.
- The employee must have been enrolled (at least half time) in a program that leads to a certificate or degree.
- The employee must certify that loan payments have been made on an annual basis.
- The employer may rely on the employee certification of payment and is not required to obtain payment and loan documentation support.
- The annual maximum deferral limit for student loan repayments considered eligible for matching contributions for 2023 is $22,500 401(k)/403(b)/457(b) and $15,500 for SIMPLEs and reduced by any employee elective deferrals. The total annual elective deferral and loan payment amount cannot exceed the Section 402(g) IRC limit.
- Matching contributions for student loan payments must be at the same rate as those for elective deferrals.
Employer business considerations:
- The first consideration in adopting a student loan match under SECURE 2.0 is whether it makes business sense, for example, in recruiting and retaining talent. Employers should assess how many employees are currently repaying qualified student loans, as well as the jobs they hold. The student loan match may make sense for employers who wish to assist all employees with student debt without regard to salary level or job function. In any event, employers should assess the costs and administrative burdens of the student loan match.
The SECURE 2.0 provides the framework for the student loan match, however many administrative and implementation questions remain. The US Department of the Treasury and IRS is expected to provide more guidance to fully implement this feature.
We will continue to provide updates as additional information is received. If you have questions about this update or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.
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