The statutory eligiblty set by the IRS for 401(k) plans is 1 year of service (defined as working more than 1000 hours) and age 21. The plan must also provide two entry dates, one at the the beginning of the plan year or six months following the completion of the requirements . From there companies can pick their own eligiblity requirements, as long as it does not exceed the IRS statutory.

The law says no earlier than 18 but a plan my exclude people up to age 21. The problem with using age 18 is that plans must perform discrimination testing. Here’s a sample of why you would exclude:

company A:

Owner -40 years old, 100k in pay
manager - 22 years old, 30k defers 10% of pay.
employee 1- 19 years old, 22k in pay, spends all of it on clothes and beer
employee 2 - 18 years old, 21k in pay, spends all of it on clothes and beer
employee 3 - 18 years old, 21k in pay, spends all of it on clothes and beer
employee 4 - 18 years old, 21k in pay, spends all of it on clothes and beer
employee 5 - 18 years old, 20k in pay, wants to save 5% in a 401k.

Scenario 1: Boss allows all employees in the plan. Boss can defer 4,500.
Scenario 2 Boss excludes all employees under age 21. Boss can defer 12,000.

Which do you think the boss is going to do?

It’s sad but the rules are in place to prevent abuse by business owners who would institute plans but not worry about educating or encouraging plan participation. And matching contributions and vesting periods do little to increase participation. the biggest factor by far is education and there is no incentive for them to educate the staff unless it’s negative. And, in my experience there is nothing that will get those under age 21 to participate at a rate that makes sense to the business owner. They either will or wont based upon their own circumstances and most 90+% won’t.

I’ve been administering 401k plans almost 4 years now. It varies from plan to plan but the normal age is 18. It is not unheard of for it to be 21 though. My current company has 3 separate plans that we manage and they are either 18 or 21.

I agree with another responder. If she wants to get started there is not reason why she couldn’t set up an IRA. She won’t have the pretax benefit of the 401k but other than that it’s worth it.

21 years old. that is federal law and pension law.

She could contribute to an IRA as an alternative…food for thought

21.

It appears to be right.