New law links your student loans with retirement savings
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for your retirement savings
New law links your student loans with retirement savings
Tucked inside the $1.7 trillion government spending bill set to be signed by President Biden this week are a host of significant retirement reforms, including a series of provisions that experts say is nothing short of a redefinition of the private retirement system itself.
The far-reaching new law has ideas that link people’s efforts to save for the future with more pressing needs, especially struggles to pay off student loans and put money aside for an emergency.
The changes for 2023 will “stretch and expand the retirement system to recognize that people's financial lives are interwoven and complicated,” said Timothy Flacke, the co-founder of a nonprofit called Commonwealth that worked with Congress and the private sector on the emergency savings provisions.
He and others have pushed for the provisions, especially those around emergency savings, as a way to give lower-income Americans more support in the coming years and head off what many worry is a burgeoning retirement savings crisis in the U.S.
“We need to find a way to balance today's needs with tomorrow's needs,” said Chantel Sheaks, a vice president focused on retirement policy at the U.S. Chamber of Commerce. "Unfortunately, I think what we've been doing in this space is only looking at one or the other.”
A link between retirement saving and student loans repayments
Of interest to people holding student loans is Section 110 of the bill that treats student loans as deferrals for the purpose of retirement savings.
What that means in practice is, beginning in 2024, if the company chooses to provide the benefit, a worker could write a check for their monthly student loan bill, but in the process also earn a “match” for their 401(k), 403(b), or SIMPLE IRA account
Proponents of the new law say it will help young people avoid missing out on years of saving and the compound interest that builds up when people start early. A 2019 study from Bankrate found that 29% of college graduates with student loans delayed retirement savings. Another study, from the Employee Benefit Research Institute, found that holding student loan debt is a key factor in how much households were able to save.
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