Why do you have to be at least 21 to start a 401k plan?

Answer 1

The rules say that you have to be at least 18 to be eligible BUT that's only a government minimum. The employer can make that age to be no more than 21. So that age 21 rule to get into your 401(k) is your employers rule.

Why would an employer do that? Typically it's one of two reasons:

1) The employer offers a decent match and wants to limit the amount of match that he/she will be obligated to pay. They do that by limiting the number of people eligible to receive it. So they use the most strict eligibility requirements: a) Age 21. b) Make them work a year and then only let them in every 6 months. c) make them work 1000 hours during year to get it and d) make them be employed at end of year to get it.

Second reason is that most employers get penalized if the staff people aren't participating in the plan. The penalty is usually a lower contribution limit for them. History and reality says that most people under the age of 21 do not participate in a 401(k). So if he/she employs a number of people under the age of 21 then that could mean a substantial decrease in his/her own contribution.

Best thing to do if you are under age 21 and your company has this limit is to go to your boss and say that you understand why the rule is in place but that you'd like to put money away for your retirement. Ask him/her to deposit money into an IRA in your name at his bank (you want it to be as easy as possible for him) via automatic payroll deduction. Then, when you do get to 21 you can roll the money in from the IRA into the 401k. While you may not get the returns, you still get the tax deduction and the balances.

Answer 2

the final consensus has been 10% elementary. in case you initiate off out under that, you will finally might desire to bump it as much as better than that to seize up. And the quicker you initiate off, the extra it may compound. yet another theory is that if all your money is retirement money is tax deferred, that would throw you into an more desirable tax bracket throughout retirement than if a number of it became tax unfastened. So it could make experience to have a mix of tax deferred and tax unfastened (Roth) mark downs. until now on your occupation whilst your tax fee is least, make a contribution a minimum of adequate to the 401k to get any business enterprise tournament, and something to Roth 401k or Roth IRA. And later whilst your income and tax fee is greater, make a contribution extra to the 401k (or classic IRA in case you have not have been on condition that then) to lessen your taxable income and in all probability stay under the subsequent greater tax bracket. no person is elementary with what tax expenditures would be once you retire if it fairly is interior the distant destiny, and with inflation, however the quantity of funds you'll want then could be better than you already know now.

Answer 3

No idea, but that probably came from Congress. But you should be eligible for a Roth IRA. If you're not even 21 yet, getting some cash started in there now would make a monumental difference over the next 50 years.

Start talking to a few financial planners.

Answer 4

It should be 18 unless your state has a specific rule otherwise.

Answer 5

I didn't believe that it was restricted to a minimum age, but it sure is. News to me.