George Kamel - This New IRS Ruling Is Wild (What You Need To Know)

Starting point is 00:00:05 The IRS gets a lot of flack, and for good reason. They're like that nerdy friend who memorized every obscure rule in the dungeon master's guide and insists your wizard can't cast fireball because you're out of components. Accurate? Sure. Fun? That's a generous description. Rules are rules. But once in a while, the IRS shocks us with a change that some would even consider... Cool. So in this video, we're going to answer three questions.

Starting point is 00:00:27 What happened? What are the pros and cons? And most importantly, is this something you should take advantage of? Okay, here's the T. The IRS has started allowing companies to offer 401k matches based on their employees' student loan payments. Until earlier this year, employers offering a 401 match could only make contributions to your retirement accounts if you were also contributing. Makes sense. Now companies can offer matches based on the amount you pay toward a student loan in a given month, rather than what you contribute to your 401k. So here's how it works.

Starting point is 00:00:56 Let's say you make 60 grand a year and your employer offers a 4% match in your 401k. That means if you put in at least $200 a month, they'll also put in $10.1.000. 200 bucks a month. That is free money and 100% return. But with this new rule, employers have the option of matching your student loan payments, not just your retirement contributions. So if you had that match and you made a student loan payment of at least 200 bucks, your employer could still put 200 bucks in your 401k, even though you didn't contribute a dime. Technically, this whole shebang started when President Biden signed the Secured 2.0 Act into law back in 2022. And if you don't remember that, don't feel bad. Neither does he. How would you say your mental focus is? Oh, it's focused.

Starting point is 00:01:34 But the IRS has only recently begun approving companies to implement this program. And some big names are already taking advantage. We're talking Walgreens, Chipotle, and even Disney. Which is good news. Since rumor has it, Mike and Sully are still paying back to Sally Mae loans for their scary days at Monsters University. Is that a joke?

Starting point is 00:01:51 Tell me, you're joking. Now, this program sounds like a great deal if you have student loans, but does it hold up when you look at it under a microscope? Mostly. Let's go over the pros and cons. Pro? It's free money. And I love free money, and I love when people pay off their debt. Getting free money for paying off debt is definitely a combination I can get behind. Unlike Heinz's cranched saucy sauce, or even worse, mayo must.

Starting point is 00:02:12 I must ask why you chose to do that. It's against the rules of nature. On the flip side, here's a big con. This applies to almost no one right now. And I don't know that employers are going to be jumping on this bandwagon in droves anytime soon. Plus, it only works with student loans. Your car payments, your credit card bills, any other debt? Not going to get any love here.

Starting point is 00:02:30 Another pro, a student loan 401k match, lets you put everything extra, from your paycheck toward debt while still investing for retirement. And I will admit, that's a big deal. If you've been around here long enough, you know I recommend pausing all retirement investing while paying off debt so you can stay completely focused on becoming debt-free with intensity. And I read the comments, so I know how you guys feel about that.

Starting point is 00:02:49 Oh, George, I don't want to miss that on my free money. Well, actually, George, if you have a loan at 5% interest and you make 10% from your investment, you can make it. Enough. Listen, how about a compromise? You can pause investing and get the match. I don't know what came over me. Wow. Why is the seat wet?

Starting point is 00:03:09 And finally, here's another potential weakness. You're only incentivized to do the bare minimum. I talk a lot about how only investing up to your employer match is a great way to have a terrible retirement. You'll spend 30 years watching your nest egg grow at a snail's pace and you'll never get to see it blossom to a fine young man or woman who keeps a clean spice garden and never forgets to call their mom on her birthday. You see, traditionally, when you only invest up to the match,

Starting point is 00:03:30 your retirement account grows by the amount you contribute and whatever your employer puts in. But with this IRS change, you're only getting the employer contribution, which is half of what you get by investing up to the match. Now, if you're treating this program as a nice boost while aggressively paying off debt and planning to invest way more once you're debt-free, then I'm all for it.

Starting point is 00:03:48 I love it. But I've been in the financial game long enough to know that lots of people who use this program will convince themselves that it's their sole ticket to a dream retirement while making very little progress on their student loan debt. And that debt is going to sit around for 10 or 20 years as they make the minimum payment to get the measly match. Think about it. If you're not all that worried about having more

Starting point is 00:04:05 margin in your budget because your employer is matching part of your student loan payment since your 401k, you might be tempted to take your foot off the gas and let that debt continue stealing your income, which, by the way, is your number one wealth building tool. So TLDR, a student loan match program can definitely be a positive for anyone who uses it correctly and maintains a high level of intensity while paying off debt, which means that I don't have a problem with you taking advantage of it if your employer offers it. It is free money, and it is a cool way to make progress on two important financial goals at the same time. But before you run off to HR and sign up,

Starting point is 00:04:36 you've got to hear my three huge tiny caveats with this program. First, though, do you ever check your email only to find ads for things you didn't sign up for? Like overnight weight loss supplements and mail pattern baldness medication? Well, in that case, your personal info is probably floating around somewhere

Starting point is 00:04:49 it shouldn't be on the web. And that means it's time to clean up your digital footprint. And that's why I recommend Delete Me, one of the sponsors of today's video. Delete Me will find and remove your info from hundreds of these data broker sites for you, keeping you safe and saving you a whole lot of time. And right now, you can get 20% off their plans by going to join deleteme.com

Starting point is 00:05:07 slash George. Or click the link in the description below. And are you tired of those big wireless companies charging you for a bunch of stuff you don't want and draining your wallet faster than your phone battery? Well, you can solve that problem by switching to Tello, another sponsor of today's show. Their unlimited talk, text, and data plan is just 25 bucks a month, and they even offer plans as low as five bucks if you don't need all the bells and whistles. Plus, it's super easy to switch. You can sign up online from the comfort of your couch or the discomfort of your IKEA couch. So to save yourself some money, go to tello.com slash George and you'll get an extra five bucks off the unlimited data plan for your first month of service. Or just click the link in the description below.

Starting point is 00:05:41 All right, time for our new segment called Huge Tiny Caviots. Huge tiny caveat number one, if you do this, continue to pause retirement investing outside of your student loan match while you pay off debt. This benefit only works out because it lets you double dip by putting all your extra money toward debt while still getting some drops in the retirement pot. It's also the only time you should double dip. Let's not be feral with the communal guas. friends, it's disgusting. One chip rule. You don't take a bite, you don't put it back in. It's not how it works. You get one chip. You dip the way you want to dip. I'll dip the way I want to dip. So keep pausing your own contributions and focus all your financial energy on getting out of

Starting point is 00:06:17 debt aggressively. You can contribute for yourself once you're debt free. Huge tiny caveat number two, don't let a student loan match slow down your debt payoff. Like we talked about, the only way to get out of debt is to attack it with a vengeance. And that means we're not going on vacations, we're not eating out, we're not upgrading to the latest iPhone, and we're definitely not buying matching workout sets from Lulu Lemon. Sorry, you're going to have to get the Amazon dupe like the rest of us. But seriously, you want to get out of debt asap so you can start investing and have way more margin to do so.

Starting point is 00:06:44 That debt is robbing you of your ability to build for the future. So don't let this little bonus cause you to lose your sense of urgency. And finally, huge tiny caveat number three, start investing 15% of your income as soon as you're debt-free with a fully funded emergency fund. Because getting an employer match while you're paying off your student loans is cool, but it's not enough to make any. any kind of long-term difference in your retirement savings.

Starting point is 00:07:05 So once your debt is gone and you have three to six months of expenses in that fully funded emergency fund, it's time to focus on the future instead of paying for the past. You can set that investment contribution for 15% and don't touch it. And then thank me later. So there you have it. Everything you need to know about the all-new student loan 401k matches. And I'm curious, what do you think about this program? If you have student loans, is this something you're going to try to take advantage of?

Starting point is 00:07:26 If you already paid off your student loans or never had them to begin with, do you feel like this is unfair to you? leave a comment below letting me know what you think. I'd love to see your contribution to this conversation. If you enjoyed this video, be sure to hit that like and subscribe button and share this with a friend. Thanks for watching. We'll see you next time.

George Kamel - This New IRS Ruling Is Wild (What You Need To Know)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.