What is a Qualified Student Loan Payment?
January 2, 2025
What is a “QSLP,” and should you implement this new provision in your Plan?
The IRS now allows employers to make matching contributions towards Qualified Student Loan Payments. In other words, if a participant is paying on a student loan, the employer may match that loan payment within its 401k plan.
Only qualified education loans incurred by an employee for certain higher education expense are allowed. Also, if the employee has a legal obligation to make a student loan repayment for their spouse and/or their children (there may be exceptions if child does not have the same principal residence for at least ½ year), those loans also qualify for a match.
Things to consider when deciding on whether to implement this provision:
- Administrative resources – You must have the resources in place to verify and collect the required documentation to ensure that the loans are qualified higher education expenses like tuition, fees, books/supplies, room/board etc.
- Possible additional testing involved – There may be additional testing involved to ensure that the plan still passes the 401k discrimination tests. Additional testing may entail additional administrative fees.
- Must be offered to all employees (not just a certain group). The loan payment goes towards meeting the annual 401k limit so an employee cannot defer their 401k limit and get a match on the student loan.
- The match on the loan payment will follow the same provisions as the employer match (so vesting or the allocation/calculation will not differ).
If you would like to discuss this further, contact us so that we can provide additional information.
As a plan sponsor, it’s your responsibility to ensure employee elective deferrals and loan repayments are deposited into your retirement plan as soon as possible after each payroll. It might seem like a small detail, but late deposits can lead to compliance issues, IRS penalties, and unhappy employees. When must elective deferrals & loan payments be deposited? The Department of Labor (DOL) requires that these amounts be deposited as soon as administratively feasible following payday — and no later than the 15th business day of the following month. But here’s the catch: that 15-day window is not a safe harbor. In most cases, timely deposit means within a few business days — often within 1-3 days — depending on your company’s payroll practices. For small employers (under 100 participants), the DOL offers a safe harbor: if deferrals are deposited within 7 business days, they’re considered timely. For larger employers, there’s no such grace period. Why is this important? Late deposits are treated as prohibited transactions and could result in: · Excise taxes to the IRS (paid with Form 5330) · Corrective filings with the DOL · Required lost earnings reimbursements And don’t forget — the DOL audits this closely. Late or inconsistent deposits can raise red flags. Tips to stay compliant: · Establish a consistent deposit schedule – Tie deposits to your payroll cycle and stick to it. · Automate where possible – Use payroll providers that offer direct integration with your plan’s recordkeeper. · Document everything – Keep a record of when deferrals are withheld and when they’re deposited. · Train your payroll team – Make sure they understand the importance of timing and the consequences of delays. Need help reviewing your deposit process? Contact us today — we’re here to support you.
Under the SECURE Act rules, 401(k) plans are now required to cover Long-Term Part-Time Employees.
Employee Elective Deferral Contributions Employees under the age of 50 who participate in 401(k) or 403(b) plans will be able to contribute up to $23,500 during 2025, which is an increase from the 2024 maximum of $23,000. The limit on catch-up contributions for people over 50 years old will remain at $7,500 for 2025; however plans implementing the new “super catch-up” rule will allow people between the ages of 60 – 63 to make additional catch-up contributions up to a maximum of $11,250. That means workers who are 50 or older can contribute up to $31,000 from their salary during the 2025 plan year (except for workers utilizing the super catch-up rule who can contribute up to $34,750.) For more on the super catch-up provision, please click here . DC Plan Annual Additions Limit The limitations for DC plans include both employee and employer contributions (safe harbor, match, profit sharing, etc.) The limit on contribution totals is $70,000 per participant for the 2025 plan year, which is an increase from the 2024 limit of $69,000. So, that’s a maximum of: o $77,500 including catch-up contributions for those over 50 years old o $81,250 including super catch-up contributions for those in the 60 – 63 age range Compensation Employee compensation limit for calculating contributions will rise from $345,000 to $350,000 and the HCE’s (Highly Compensated Employees) threshold for nondiscrimination testing will increase from $155,00 to $160,000. As a reminder, employers should convey these changes to their employees to encourage participation in the plan. It is also important to make sure your payroll system is up to date with the new 2025 employee contribution limits prior to the start of the year. To understand how these changes may affect your plan contact your pension consultant . To see the full chart of the 2025 Plan Limits, click here .
Understanding the new IRS catch-up limit increase.
BCG ahead of the curve on new IRS policy.
Understanding new IRS withdrawal rules.
In 2023, employees will be able to contribute up to $22,500 a year, up from $20,500 to 401(k), 403(b) and other tax-advantaged employer savings plans. The limit on catch-up contributions for people 50 or older also rose to $7500 from $6500. That means a worker over 50 years old can contribute a maximum of $30,000 next year. The total contribution limit, which includes employer contributions, increased from $61,000 to $66,000. So, for those over 50 years old who take advantage of the catch-up contribution, that’s a maximum total of $73,500. Employee compensation limit for calculating contributions will rise from $305,000 to $330,000 and the HCE’s (Highly Compensated Employees) threshold for nondiscrimination testing will increase from $135,00 to $150,000. We have not seen these large increases in decades, we can thank inflation for that! Employers should convey these changes to their employees to encourage increased participation. To understand how these changes may affect your plan contact your pension consultant here . To see the full chart of the 2023 Plan Limits, click here .
The SECURE ACT and "lifetime income illustrations"
The total of all salary deferrals a participant makes to various retirement plans – including 401(k), 403(b), SARSEP and SIMPLE IRA plans – is limited to $19,500 (plus an additional $6,500 if age 50 or over) for 2020. If an individual defers more than this limit for 2020, the excess deferral amount plus earnings must be distributed by April 15, 2021. Excess salary deferrals not withdrawn by April 15 are taxable in 2020 and again when withdrawn. The date to remove excess salary deferrals has not been extended. Individuals who made salary deferral contributions to two or more retirement plans in 2020 may be most at risk for exceeding the deferral limit. Use our Interactive Tax Assistant to help determine how to correct excess salary deferrals.RMD’s) are back on for 2021. Participants in qualified retirement plans (401(k)’s, IRA’s, etc.) used to be required to begin taking distributions once they reached age 70 ½. That requirement has now been changed to age 72. So if you turned 72 in 2021 or before, be sure that you take the proper distributions by the required due date. That date is December 31, 2021 if you turned 72 prior to 2021 and it’s April 1, 2022 if you turn 72 in 2021. Contact us for more information.
It is now tax season so business owners are huddling with their accountants to get the bad news. Accountants are looking for ways to lessen the pain. That is where Qualified Retirement Plans (401(k), Profit Sharing, Defined Benefit and Cash Balance Plans) come in. For over 30 years accountants have come to us for ways to reduce the check to Uncle Sam and for over 30 years the answer has always been the same. Yes, you can do it, but not for last year. This year that has all changed. For the first time you can set up a qualified retirement plan AFTER the end of the year but use it to reduce your tax burden for LAST year. That is right. 2020 is the first year you do not have to take action by December 31! And you can make contributions to the plan all the way up to the due date of your tax return, even the extended due date, and still take the deduction on your 2020 return. And, by the way, do not miss the tax credit for setting up a new plan. That is TAX CREDIT , not tax deduction. Call us for details.
