SECURE 2.0 rolls out new student debt (and education) benefits in 2024

In 2024, many of the SECURE Act 2.0’s groundbreaking provisions go into effect, providing employers with the ability to support their employees with new education benefits. Employers now have the ability to match employee student loan repayments as part of their retirement plans, and savers will also have the ability to roll over their 529 savings to a Roth IRA savings account.

According to a recent Financial Health Network/Morgan Stanley study, four in five workers who report high financial stress say that they are distracted by this stress at work. Financial concerns are also the top source of stress for employees, even more than issues at work or their health. More than 40 million Americans carry a collective burden of $1.6 trillion in student loan debt, and they are in need of support. Nearly half of employees surveyed by SHRM consider student loan repayment assistance the most important workplace benefit. However, only 17% of employers offer this benefit to their employees.

In addition to the many retirement benefits, SECURE 2.0 provides a great opportunity for employers to address their employees’ financial stresses as well as attract new talent through two new education provisions.

#1: Student loan matching

SECURE 2.0 includes a provision to create a retirement plan matching program to encourage employees to pay off student loans. Starting on January 1, 2024, employers of any size will be able to offer a student loan matching benefit within their company 401(k), 403(b), or SIMPLE IRA plan.

Employees with student loans often have to make a tough choice between debt repayment today, or building retirement savings. In section 110 of SECURE 2.0, employers will now be allowed to match employee student loan payments with a contribution to the employee’s 401(k) retirement plan, allowing those participants to receive a matching contribution for student loan repayments. The plan will enable employees to build their retirement savings while making student loan payments. This will provide employers with the ability to reduce some of the financial stress their employees face every day while simultaneously increasing productivity and job satisfaction.

Loans covered in this new provision must be deemed to be qualifying higher education loans, and are not immediately available, similar to a 401(k) plan. Another important thing to note is that this is an optional provision among employers, so if an employee were to leave employment, they may lose the matching program unless their new employer also provides one. Many companies have implemented programs like Gradifi to offer student loan repayment assistance and the latest employee benefits programs available.

#2: 529 rollovers

The second education provision provided by SECURE 2.0 impacts 529 Education Savings Plans. Employers offering these plans can note the provision that enables savers to roll over funds from 529 plans tax-free to a Roth IRA. To qualify, the 529 plan must have been open for over 15 years, with a $35,000 lifetime cap. The funds can be transferred to the 529 account beneficiary into an IRA savings account, making this an attractive option to avoid tax penalties for withdrawal.

Related: 3 key SECURE 2.0 provisions go into effect in 2024: What plan sponsors need to know

Traditionally, if families over-saved for higher education, they had few options to utilize those additional savings. With the new rule on 529 plans in SECURE 2.0, savers have an additional opportunity to put their savings to good use: in short, this provision helps encourage college savings by reducing the concerns around overfunding the 529. While rollover amounts cannot exceed the annual contribution limit for Roth IRAs, this provides millions of families with an opportunity to reallocate unused education funds to their retirement or give their child a head start toward their retirement.

With the help of a financial advisor, benefits professionals can evaluate the best programs to implement in 2024 and beyond. As the workplace benefits space evolves, employers have new opportunities to offer retirement benefits that provide more flexibility to their employees. Taking advantage of SECURE 2.0’s changes in 2024 can enable benefits providers to improve their employee retention and recruitment.

Kevin Gaston is Director of Plan Design at Vestwell.