Part-Time for Years? The 401(k) Access Rule That Could Have Finally Put You in the Plan
For years, many part-time workers were blocked from making 401(k) contributions to their employers’ plans. But the SECURE Act and SECURE 2.0 Act expanded access to part-time workers.
Here’s what to know about how the legislation opened the door for long-term, part-time workers to contribute to 401(k) plans.
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How the rules changed for part-time workers
Under the old rules, an employee had to work 1,000 hours per year at a company to qualify for the 401(k) plan. That comes to 20 hours per week for 50 weeks. However, the SECURE Act, which passed in 2019, created a new opening.
Workers who are 21 or older and have worked part-time at the same company for three consecutive years can become eligible for a 401(k) plan. The requirement is that these workers had to work at least 500 hours per year for each of those three years. SECURE 2.0, which passed in 2022, took it a step further and made it possible for part-time workers to be eligible after two years of working 500 hours per year.
Qualifying does not guarantee an employer match, but you can start contributing to a 401(k) plan. Your plan may also have different entry dates and administrative rules if you are a part-time worker.
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Who is most likely to benefit
Part-time employees are the biggest winners, and it can have an outsized impact in industries that employ many part-time workers who may not reach 1,000 hours of work time per year, such as retail, restaurants and seasonal work.
The 500-hour milestone only requires working roughly 10 hours per week for 52 weeks. However, you have to act to get a 401(k) plan. Ask your HR department or the plan administrator if you are being tracked as a long-term part-time employee and when you are permitted to participate in your employer’s 401(k) plan. That’s known as your entry date.
You should also ask about how the 401(k) plan works. Will you receive employer matches? Can you choose between traditional and Roth? Which investments are available? These key questions can help you plan accordingly for the day you can start contributing.
Why this matters for retirement savings
Being included in your employer’s 401(k) plan is a great way to save for retirement, even if you aren’t receiving the match. Payroll deductions take place automatically, which means you don’t have to do anything extra on your end to start building a nest egg. You can either save money on taxes right now with a traditional 401(k) or not have to pay taxes on qualified withdrawals if your money is going into a Roth 401(k) plan.
You can still contribute to an individual retirement account (IRA), but 401(k) plans have much higher contribution limits, allowing you to save more money each year. All of the small contributions can compound over a long career and provide more financial flexibility when you retire. Part-time workers may have a more difficult time maxing out their accounts, but these retirement plans provide a higher ceiling that they can utilize when possible.