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 can take advantage of the power of compounding.
However, some younger employees may not have access to a 401(k). Employers are obligated to provide access to their 401(k) retirement plan to employees over age 21 who meet a minimum amount of annual work hours. But they can choose whether or not to offer a 401(k) plan to employees younger than 21.
- Employers can offer 401(k) plans to employees under age 21, but are not obligated to by law.
- Employers must offer their 401(k) plans to all employees at least 21 years old with 1,000 hours of service in a year or 500 hours each 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 can restrict when you can get a 401(k), as these retirement plans are tied to employment.
How a 401(k) Plan Works
As a defined contribution plan, a 401(k) is designed to encourage retirement savings with its tax benefits. With a traditional 401(k), you make contributions with pretax funds, so you can reduce your tax bill. With a Roth 401(k), you make contributions with after-tax funds and then you can take 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, plus a catch-up contribution of $6,500 for people age 50 or older. For 2023, the contribution limit increases to $22,500 and the catch-up contribution for those aged 50 or older increases to $7,500.
Including any potential matching employer contributions, total annual contributions for 2022 cannot be more than $61,000 (or $67,500 for employees ages 50 and up) or more than 100% of the employee’s salary—whichever is less. For tax year 2023, the limit for total annual contributions increases to $66,000, and to $73,500 for those aged 50 or older.
Once you are age 59½ or meet other IRS conditions, you can begin withdrawing money from your 401(k) with no penalties. Anyone who has a 401(k) from their employer and earned income for the year can contribute because there are no age restrictions.
When You Can Start Making Contributions to a 401(k)
An employer is required to provide its 401(k) plan to any worker who is at least 21 years old and has worked a minimum of 1,000 hours in the last year, though there are some exceptions to the rule. Employers must also provide their retirement plans to employees who work a minimum of 500 hours for each of the past three consecutive years.
You can start making contributions to a 401(k) at any age because there are no age restrictions. Neither Internal Revenue Code section 401(a) nor the Employee Retirement Income Security Act (ERISA) of 1974 prohibit younger workers from starting a 401(k) with their employer.
The Age of Majority and Labor Laws
While 401(k)-related laws don’t prohibit people younger than 21 from opening a 401(k), other regulations such as labor laws 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 competence can determine how old you must be to sign a legal contract, such as enrolling in a 401(k). In most U.S. states, the age of majority, or the age when you are legally an adult, is 18. (Alabama, Mississippi, and Nebraska have different laws.)
In addition, labor laws can restrict whether a minor can even join the workforce. Under the Fair Labor Standards Act, the youngest you can be to get a job is 14, and the hours are limited. So, younger employees are less likely to meet the standards that require an employer to offer a 401(k), although employers may offer one to any employee they choose.
Is There a Maximum Age Limit for 401(k) Plans?
There is no maximum age limit to contribute to a 401(k) plan. As long as you are earning income, you can contribute. Keep in mind that 401(k) plans do have required minimum distributions (RMDs), which are minimum withdrawals, that must start at age 72 as of 2022.
Can You Open Other Types of Retirement Plans at a Young Age?
You can open other retirement plans, like individual retirement accounts (IRAs), for a minor. Unlike with a 401(k), which is tied to employment, you can open an IRA for a minor who does not have a job. Both Roth IRAs and traditional IRAs can be opened for children, as long as they are set up as a custodial account by either a parent or another adult.
Are Employers Required to Create a Retirement Plan Under the Employee Retirement Income Security Act (ERISA)?
Employers are not required to provide a retirement plan. The Employee 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 Bottom Line
You can contribute to a retirement plan as soon as you have one, no matter your age. You may face hurdles getting a 401(k) at a younger age because employers are not required to provide one until you are 21 and meet certain minimum work hours per year. But as long as you have a plan, you can start saving for your retirement through a 401(k).