You must be eligible to participate before you can enroll in a 401(k) plan. But that's not a problem. Federal law requires that when an employer sponsors a plan, all employees must have an equal opportunity to save for retirement.
Your employer can impose two restrictions: that you must work for a full year—usually at least 1,000 hours over 12 months—and be at least 21 years old before you enroll. But not all employers make you wait. One of the questions you'll want to ask when you're considering a new job is when you'll be eligible to contribute to a 401(k).
Once you're eligible, though, you might not be able to enroll immediately. Plans often have specific start dates for new participants, such as once a quarter or twice a year, or during an open enrollment season. For example, if you've been on the job for a year in August, you might have to wait until October 1 or January 1. That's something else to check—though it's not the only factor you'll consider when you’re deciding between job offers.
In any year you're not eligible to contribute to your employer's plan, you may be eligible to make a tax-deductible contribution to a traditional individual retirement plan (IRA). Or, you may qualify to put retirement money into a nondeductible but tax-free Roth IRA. You probably want to check with your tax adviser to determine if you're eligible and which may be smarter for you.
A Fair Deal
Every year, 401(k) plans are tested to make sure that they comply with eligibility, contribution, and other requirements, and that employers don’t discriminate against employees with lower salaries in favor of highly compensated employees. Nondiscrimination testing ensures that employers treat all employees fairly and equitably—and encourage broad participation. If a 401(k) plan is judged discriminatory, it might be penalized or even dissolved. |
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