IRS Allows Student Loan Benefit in 401(k) Plan

In a private letter ruling (PLR), the Internal Revenue Service (IRS) approved an employer’s proposed program to add a student loan benefit to its 401(k) plan. The employer will make matching contributions to its 401(k) plan for employees who make student loan repayments. The program would be voluntary and an employee could opt-out after enrolling.

Employers should keep in mind that PLRs are directed only to the employer requesting them and may not be cited as precedent. However, this does give insight on how the IRS may approach this topic in the future.

When employers offer a benefit giving student loan repayment dollars directly to employees, those payments are treated as taxable repayment dollars directly to employees, those payments are treated as taxable income, whereas employer 401(k) contributions are not taxable.

The employer’s proposed approach would provide employees some of the tax advantages associated with traditional tuition-reimbursement generally denied to student loan repayment benefits.

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