Consumer Alert: Here’s how you can pay your student loans while saving for retirement

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ROCHESTER, N.Y. – This consumer alert is an answer to the cries we’ve heard from twenty-somethings.  On Monday, I stressed the importance of starting to save for retirement in your twenties. Young workers are telling us that’s almost impossible to do when you’re saddled with student loan debt.

I get it.  So do members of Congress.  So they tried to address it with Secure Act 2.0.  Secure stands for Setting Every Community up for Retirement Enhancement.  The act was first passed in 2019, then Congress modified it in December of 2022 to help young workers save for retirement while paying off student loan debt.

“There’s language that allows for the employer to offer a match to the retirement program based on the dollar amount that the employee is paying toward their student loan,” said Jarrett Felton, News10 NBC Personal Finance Expert and Managing director of Invessent.

Here’s an example of how it will work.  Let’s say this employee is making $40,000 a year. According to analysis by U.S. News, the average loan repayment is around $300 a month, making it tough for that employee to save for retirement.  Starting next year, employers can contribute the amount of the employee’s loan payment to their retirement account.  So while paying off his loan, the employee is also socking away $3,600 dollars a year for retirement.  Employers can start participating next year.

Another part of that bill is designed to make saving for retirement automatic. 

“It would trigger an employer to automatically enroll a new hire in the 401(k) with a minimum contribution out of their paycheck of three percent all the way up to ten percent,” said Felton. “It’s at the discretion of the employer.”

So here’s how that would work.  Let’s say a new employee makes a gross salary of $40,000.  At three percent, the employee would automatically make a pre-tax contribution of $1200 a year to his 401(k).  And if the employer matches that contribution, which many do, now you’re socking away $2400 a year.  That part of the bill goes into effect in 2025.

“Now the employee has the right to decline that,” said Felton.  “But this is supposed to automatically enroll someone.  So if the employee says, ‘I don’t want to be a part of it’ for whatever reason, they can elect to not be.”

Felton acknowledges both programs are costly for the employer.

“But I think it just depends ultimately on the type of culture and environment that employers want to have and the type of talent that they want to bring in,” he said.

It’s important to note that small businesses with 10 or fewer employees, new businesses, church plans and governmental plans will be exempt from automatic 401(k) enrollment.  And participating in the student loan/retirement contribution plan is the employer’s choice. But as Felton says, it will be important to employers who want to attract and keep good employees.  So when you go on that next job interview, ask about the program.  That lets potential employers know this benefit is an attractive benefit to you and others like you.