With a 401(k), eligibility refers to the requirements that an employee must meet in order to participate in a 401(k) plan. These requirements are set by the employer and may vary from plan to plan.
They typically include factors such as:
- Age: The employee must be at least 21 years old, although some employers allow younger employees to participate.
- Length of Service: The employee often must have a certain length of service with the employer. This can range from immediate eligibility upon hiring to requiring one or two years of service.
- Hours Worked: The employee may need to work a certain number of hours per year. The IRS generally requires that employees who work 1,000 hours or more in a year be allowed to participate.
- Union Membership: If an employee is part of a union, their eligibility may depend on the specific terms of their union contract.
- Part-Time vs. Full-Time Status: Some employers only allow full-time employees to participate in the 401(k) plan.
- Waiting Period: Some employers impose a waiting period before new employees can participate in the 401(k) plan.
If an employee meets the eligibility requirements for a 401(k) plan, they can then begin contributing to the plan. The amount that an employee can contribute is generally limited by the IRS.
Eligibility for a 401(k) plan is an important consideration for both employers and employees. By understanding the eligibility requirements, employers can ensure that their employees are able to participate in the plan and save for retirement. Employees can also use this information to determine if they are eligible to participate in their employer’s 401(k) plan.