
And yet, 401(k)
and matching contributions are particularly valuable when one is new in their
career. The younger you are when you start contributing, the more time you have
to accumulate earnings on those early contributions. Starting early is a key
factor in building up a nest egg big enough to support you in retirement.
Employers
have tried solutions like automatic enrollment to encourage retirement saving.
But, employees can always opt out—and those who are conscientiously paying down
student debt often do. Now, a recent private letter ruling from the IRS holds
out the tantalizing possibility of encouraging debt repayment and retirement
savings at the same time. The IRS approved a plan that offers employees the
opportunity to get an employer retirement plan contribution of 5% based on the
employee paying at least 2% of their pay period compensation toward repayment
of student loans. Employees who don’t want or need to participate in the plan can
still get a 5% match based on contribution of at least 2% of compensation to
the 401(k) plan—a regular matching contribution.
The IRS
approval of this feature applies only to the taxpayer who requested the ruling
and does not guarantee that the feature meets all of the plan qualification
requirements. Nevertheless, many commentators and employers are taking notice
and considering adding similar features to their plans. Contact your GPM
attorney if you’re interested—a change like this needs careful legal
consideration in the context of your plan and your employee base.
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