The 401(k)-retirement account continues to evolve, with a recent IRS ruling allowing employees the power to choose how to allocate their company’s contributions.
The ruling would allow employees to designate a portion of their company’s match to go towards their 401(k), health reimbursement accounts or student-loan repayments.
The ruling applies only to one company that made the request, but some advisers said this could open the door to more flexibility in 401(k) accounts across the board.
“This is so exciting,” said Emily Irwin, head of advice at Wells Fargo Bank. “This is so innovative and interesting from the employer and employee perspective. It’s putting all the control into employee hands with a baked-in default towards retirement.”
What does the ruling allow?
The so-called private letter ruling allows workers at one unnamed company to choose at the beginning of each year where they want their company’s 401(k) retirement match to go. They can apply the money to the employees’ retirement plan, health savings account, student-loan repayment, a retiree health-reimbursement arrangement, or possibly a combination of those options. If no choice is made, funds would automatically go into the worker’s retirement account. Employees wouldn’t be able to take the money in cash.
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If other companies want to implement a similar flexible program, they’d have to make their own requests to the IRS.
Employee match and…
