Can You Be Too Young for One?

To get the most out of a 401(k) retirement plan, the sooner you can start saving, the better. With more time to invest, you can get more tax benefits and enjoy the power of compounding.

However, some younger employees may not have access to a 401(k). Employers are required to provide access to their 401(k) retirement plan to employees over age 21 who meet a minimum number of annual work hours. But they can choose whether or not to offer a 401(k) plan to employees under 21.

Key points to remember

  • Employers can offer 401(k) plans to employees under age 21, but are not required by law to do so.
  • Employers must offer their 401(k) plans to all employees who are at least 21 years old and have 1,000 hours of service per year or 500 hours per year for three consecutive years.
  • The age of majority, when a person is considered an adult and can legally enter into contracts, is 18 in most of the United States.
  • Labor laws may limit when you can get a 401(k) because these retirement plans are job-related.

How a 401(k) plan works

As a defined contribution plan, a 401(k) is designed to encourage retirement savings through its tax advantages. With a traditional 401(k), you contribute with pre-tax funds, allowing you to lower your tax bill. With a Roth 401(k), you contribute with after-tax funds, then you can make tax-free withdrawals in retirement. Many employers also offer matching contributions.

The Internal Revenue Service (IRS) sets contribution limits on how much you can contribute to these plans. For 2022, the contribution limit is $20,500, or $27,000 for those age 50 and older. Including any potential matching employer contributions, total annual contributions cannot exceed $61,000 (or $67,500 for employees age 50 and older) or more than 100% of the employee’s salary, whichever is lower.

Once you turn 59½ or meet other IRS conditions, you can start withdrawing money from your 401(k) without penalties. Anyone who has a 401(k) from their employer and earned income for the year can contribute because there is no age limit.

When can you start making contributions to a 401(k)

An employer is required to provide their 401(k) plan to any worker who is at least 21 years old and has worked at least 1,000 hours in the last year, although there are some exceptions to the rule. Employers must also provide their retirement plans to employees who have worked a minimum of 500 hours for each of the last three consecutive years.

You can start contributing to a 401(k) at any age because there is no age limit. Neither Section 401(a) of the Internal Revenue Code nor the Employee Retirement Income Security Act (ERISA) of 1974 prohibits young workers from starting a 401(k) with their employer.

The age of majority and labor laws

While 401(k) laws do not prohibit people under 21 from opening a 401(k), other regulations such as employment law or age of majority rules could prevent a younger person from contributing to a 401(k) plan.

First, a state rule for the age of majority or the age of jurisdiction may determine how old you must be to sign a legal contract, such as enrolling in a 401(k). In most US states, the age of majority, or the age at which you are legally an adult, is 18. (Alabama, Mississippi, and Nebraska have different laws.)

In addition, labor laws may limit a minor’s ability to join the labor market. Under the Fair Labor Standards Act, the youngest you can be to get a job is 14 and the hours are limited. Thus, younger employees are less likely to meet the standards that require an employer to offer a 401(k), although employers can offer one to any employee they choose.

Is there a maximum age limit for 401(k) plans?

There is no maximum age for contributing to a 401(k) plan. As long as you earn income, you can contribute. Keep in mind that 401(k) plans have required minimum distributions (RMDs), which are minimum withdrawals, which must begin at age 72 beginning in 2022.

Can you open other types of retirement plans at a young age?

You can open other retirement plans, such as Individual Retirement Accounts (IRAs), for a minor. Unlike a 401(k), which is tied to employment, you can open an IRA for a minor who doesn’t have a job. Roth IRAs and Traditional IRAs can be opened for children, provided they are set up as a custodial account by a parent or other adult.

Are employers required to establish a pension plan under the Employees Retirement Income Security Act (ERISA)?

Employers are not required to provide a pension plan. The Employees Retirement Income Security Act (ERISA) establishes minimum guidelines for private companies that decide to offer 401(k) plans to their employees, but the guidelines do not require that they offer these plans.

The essential

You can contribute to a retirement plan as soon as you have one, regardless of your age. You may face barriers to getting a 401(k) at a younger age because employers aren’t required to provide you with one until you’re 21 and meet certain minimum work hours per year. But as long as you have a plan, you can start saving for retirement with a 401(k).