On this week’s episode, Roger and Elias discuss what it takes to have the mindset of a millionaire. They talk about what to do with your 401(k) after leaving an employer, how to find 401(k)’s you may have forgotten and Elias shares a 401(k) tip from SECURE 2.0 that student loan borrowers should be aware of. 

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Hosted By: Roger Abel
Guest Host: Elias Randel
Produced By: Molly Nordlocken

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Student loan debt has become a significant burden for millions of Americans. With the ever-increasing cost of higher education, students are forced to take out massive loans that hang over their heads for years after graduation. However, there may be a viable solution that many student loan borrowers are overlooking – a 401(k) “hack” that could help them save money and pay off their loans faster.

A 401(k) is a retirement savings plan offered by employers, allowing employees to contribute a portion of their salary to a tax-advantaged investment account. These contributions are often matched by the employer, providing an additional incentive to save for retirement. While the primary purpose of a 401(k) is to build a nest egg for the future, it can also be strategically used to tackle student loan debt.

The so-called “hack” involves taking advantage of an employer’s 401(k) matching program while simultaneously channeling the maximum amount allowed towards student loan repayment. By doing this, borrowers can benefit from their employer’s matching contributions and accelerate their loan repayment, all within the same paycheck.

Here’s how it works: instead of contributing a portion of their salary to a 401(k) account, borrowers can allocate that same amount towards their student loan payments. This way, they are maximizing their loan repayment while still receiving their employer’s matching funds. It is important to note that this strategy does not involve reducing overall contributions towards retirement but reallocating them towards debt repayment temporarily.

However, it’s essential to understand that this strategy is dependent on individual circumstances and should be carefully evaluated before implementation. Here are a few factors to consider:

1. Employer’s matching policy: Some employers match a percentage of their employees’ contributions, while others might have a fixed dollar amount. It is crucial to know the details of your employer’s matching policy to gauge the potential benefits of this approach.

2. Loan interest rates: If the interest rates on your student loans are relatively low, it may make more financial sense to prioritize saving for retirement over accelerating loan repayment.

3. Financial goals: Personal financial goals should be taken into account. If retirement is a more immediate concern, it may be better to focus on building up a retirement fund rather than aggressively paying off student loans.

4. Income stability: This strategy may not be suitable for those with unstable income or individuals who anticipate a decrease in salary in the near future. It is vital to ensure that the redirected funds towards student loan repayment can consistently be met.

While this 401(k) “hack” presents an intriguing opportunity for student loan borrowers, it is essential to weigh the pros and cons based on individual circumstances. It may be wise to consult a financial advisor for a comprehensive evaluation of your situation and retirement goals.

It is worth noting that this approach is not without criticism. Some argue that individuals should prioritize saving for retirement and taking full advantage of employer matching contributions, as retirement savings cannot be easily recovered. Others contend that paying off high-interest student loans should be the primary objective to minimize debt and associated long-term costs.

Ultimately, the decision to employ this strategy should consider both short-term debt repayment goals and long-term retirement objectives. By striking a balance that aligns with personal circumstances, borrowers may find themselves on a path towards financial freedom, both in terms of student loan debt and retirement readiness.