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IRS approves tying student loans to 401(k) employer contributions

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The Internal Revenue Service (IRS) issued a private letter ruling which allowed an unnamed employer (some say it’s pharmaceutical giant Abbott) to make 401(k) contributions to participants who are repaying their student loans.

 

In a nutshell, the IRS approved the 401(k) plan in question to allow plan participants to choose whether they’d prefer a 5% contribution from the employer to be in the form of a 401(k) match or a student loan repayment. Participants would receive the contribution regardless of whether or not they are contributing to the retirement plan.

 

Before you start promoting the idea of this contribution option, remember it’s part of a private letter ruling specific to the issue of the employer and plan in question. I wouldn’t suggest anyone adopt such an option without further guidance or seeking a private letter ruling of your own.

 

Will this option become popular if codified into law? Perhaps, perhaps not. However, I like the idea of it because I like choices when it comes to 401(k) plans and any mechanism that can help plan participants get their financial future into place is alright by me.

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