The SECURE Act 2.0 was signed into law in 2022 and contains several important provisions that could make it easier for Americans to save for retirement. However, not all the provisions went into effect immediately, and there's one particularly interesting part of the legislation that could help Americans with student debt save more money.
With that in mind, here's a rundown of what the SECURE Act 2.0 does, and why the student loan provision could be especially interesting for borrowers in 2024.
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The SECURE Act 2.0 in a nutshell
The SECURE Act 2.0, which stands for Setting Every Community Up for Retirement Enhancement, is the latest effort by lawmakers to combat the retirement savings shortfall that exists in the United States.
According to Vanguard, the average 401(k) balance in the United States is $112,572, and even the average $232,710 balance by participants aged 65 and older isn't likely to be sufficient for a financially secure retirement. And only 31% of nonretired people feel their retirement savings are on track.
The SECURE Act 2.0 contains several provisions, including (but not limited to):
- Expanded automatic enrollment in employer-sponsored retirement plans
- Additional incentives for small businesses to start retirement plans
- Requires the Saver's Credit to be deposited into the taxpayer's IRA or retirement plan starting in 2027
- Helps small employers combine to offer larger (more favorable) retirement plans
- Increases the age where required minimum distributions (RMDs) must be taken to 73, and to 75 starting in 2033
- Indexes the $1,000 IRA catch-up contribution limit for inflation
- Higher catch-up contributions for savers aged 60-63 in employer-sponsored plans
- Employers can offer small incentives (like gift cards) to entice employees to contribute to their retirement plans.
In addition, there's one provision of the new law that went into effect on Jan. 1 that could be particularly important for student loan borrowers to know.
The student loan provision you need to know
One particularly interesting provision in the SECURE Act 2.0 is that employers can now match employees' student loan payments as 401(k) contributions. Section 110 of the SECURE Act 2.0 is designed to help employees who may be too overwhelmed with student loan debt to save for retirement. With 85% of Americans with student loans saying that student loan debt is adversely affecting their ability to save for retirement, this certainly makes sense.
As an example, let's say that your employer matches your 401(k) contributions dollar for dollar up to 6% of your salary. However, your student loan payments make it impractical to contribute 6% of your salary to your 401(k), so you decide to not participate.
Under the new law, employers can consider employees' student loan payments "elective deferrals" for the purposes of determining matching contributions. In other words, if you contribute 6% of your salary to repaying your student loans in the example, your employer is allowed to make a 6% matching contribution to your 401(k), 403(b), or SIMPLE IRA on your behalf -- even though you haven't personally contributed a penny.
Employers can consider payments to both federal and private student loans for the purpose of matching contributions. In order to be eligible, employers must already offer matching contributions for retirement savings. And to be perfectly clear, this is something employers can choose to offer to employees -- adoption isn't mandatory.
This new provision, combined with other recent student loan initiatives like the SAVE repayment plan, could make it significantly easier for student loan borrowers to manage their debt and eventually eliminate it without having to choose between saving for retirement and paying back their student loans.
