Quick takeaways
401(k) eligibility requirements tell you who can participate in your company's 401(k) plan and when they can join.
The IRS sets the maximum eligibility requirements that can be applied. This includes an age requirement no higher than 21 and a service requirement no more than one year. But as an employer, you can typically set more lenient requirements.
Selecting eligibility requirements is important because they can have a big impact on your plan design and administration. The more complicated the requirements, the more time you may have to spend on administration.
As an employer, you are likely aware that 401(k) plans are often a cornerstone of an employee's benefits package. At a high level, a 401(k) is a qualified retirement savings plan offered by an employer. It allows employees to defer some of their compensation from their paychecks directly into a retirement account. It can also allow you, as an employer, to contribute funds to help employees save even more. With traditional 401(k) plans (as opposed to Roth 401(k) plans), contributions are made pre-tax and investment growth is generally tax-deferred.¹
In this article, we'll dive into some of the more technical details of offering a 401(k) plan: eligibility rules, requirements, and tracking.
Understanding 401(k) plans and eligibility
401(k) plans can be a great way to save for retirement, but the IRS does have important rules that you as an employer must follow in order to offer this to your employees. Eligibility requirements are part of these important rules. It is essential that you understand eligibility requirements, because they tell you who can participate in your 401(k) plan, when they can participate, and other key information to help you stay compliant.
At a high level, the IRS sets the maximum eligibility requirements that can be set. You can't make eligibility requirements that are more strict than the IRS, but you can be more lenient. Some common categories for requirements include age, length of service, and class of employee.
Breaking down 401(k) eligibility requirements
401(k) maximum eligibility requirements from the IRS include:
Age requirement: Be at least 21 years old
Service requirement: Have at least one year of service (two years for profit sharing or matching contributions)
What do those mean exactly? The age requirement is pretty self-explanatory, but the service requirement has some details to get into.
In the past, all employees could be subject to a one year of service where you could require they work at least 1,000 hours during that year. In 2025, a new rule stacks on top of the normal 1 year with 1,000 hours requirement — employees who work at least 500 hours in two consecutive years must be eligible to make deferrals into the plan (does not apply to employer contributions), so it is important to take both rules into consideration when determining eligibility based on service.
Employee role and classification is also an important part of eligibility. There are some classes of employee that are often excluded from 401(k) eligibility, including:
Union employees
Non-resident aliens
Leased employees
While the plan can generally exclude most any class of employees, there are two things to keep in mind. The first is that you cannot exclude part-time or seasonal employees as a class under IRS regulations. Additionally, while you can exclude certain classes without requiring additional testing, most often you will need to complete additional non-discrimination testing if you have excluded anyone. Note that 1099 independent contractors are never eligible for a company’s 401(k) plan.
401(k) eligibility examples
Listing out those eligibility rules is all well and good, but what about real world scenarios?
Here is a breakdown of some common scenarios of employees that would be eligible for a 401(k) plan assuming the max requirement of age 21 and one year of service with 1,000 hours with no excluded classes:
Your employee works full-time, is not a union employee, and is 40 years old.
Your employee works 20 hours a week, is not a leased employee, and is 21 years old.
Here is a breakdown of some common scenarios that would exclude employees from 401(k) eligibility under IRS rules:
Your newly hired employee works full-time and just turned 20 years old. [They do not meet the age requirement.]
Your employee works part-time, 8 hours every other week and is 32 years old. [They do not meet the service requirement.]
Want to be more lenient with the eligibility requirements for your plan? You can — you just can't be more strict. For example, you could make the minimum age 18 years old. But you can't make the minimum age 25 years old. You could make the minimum service requirement three months, but you can't make the minimum service requirement three years.
Communicating with your employees about 401(k) eligibility
Just like other aspects of your business, clear and accurate communication with your employees is an important part of offering a 401(k) plan. When it comes to eligibility, employees need to know the basics, like the requirements to become eligible and when they will become eligible. They also need to know some deeper details on certain issues, like how your plan handles exceptions and unusual cases, like quitting and getting rehired.
Make sure that you have a consistent way to provide employees with written information they will read and can reference at any time. This may take the form of an online portal, paper notices provided in-person, or something else. There are also notices that you must provide to those eligible for your plan. You can find more information about them here.
Another tip? Stay on top of important dates that may trigger sending information to an employee. Here are some key dates and their definitions:
Eligibility date = The date that your employee has satisfied the requirements to participate in the plan.
Entry date = The date that your employee actually enrolls in the plan. This will likely be different from the eligibility date, as most plan administrators set forth certain dates that employees can enroll.
Navigating changes and updates to 401(k) eligibility rules
It always pays off to stay up-to-date with new rules, regulations, and laws that the government releases about 401(k) plans. One of the most recent updates that has changed 401(k) eligibility rules is the SECURE Act of 2019 and SECURE 2.0 in 2022.
SECURE 2.0 is the legislation that updated maximum eligibility for long-term part-time employees to participate in 401(k) plans by introducing the rule mentioned above. Basically, starting in 2025 employees who have worked 500 hours or more per year for two consecutive years must be allowed to participate unless they are in an excluded class.
Familiarizing yourself with 401(k) eligibility requirements is important, especially as you set out to determine the eligibility rules that will work best for your company. If you're looking for a way to manage 401(k) eligibility, a partner like Gusto Retirement can help. We help employers like you with their 401(k) management so that you can focus on what matters — your business.
The information provided in this blog post is accurate and up-to-date as of May 2026. IRS plans and limits are subject to change. Please consult a Financial Professional for the most current information regarding your specific financial situation.
FAQs
Who is eligible to participate in a 401(k) plan?
Employees are generally eligible to participate in a 401(k) plan if they are at least 21 years old and have completed one year of service (typically defined as 1,000 hours worked) unless they are part of an excluded class of employees. Employers can choose more lenient requirements — such as a lower minimum age or shorter service period — but cannot set stricter standards than the IRS allows.
Can part-time employees participate in a 401(k)?
Yes, part-time employees can be eligible for a 401(k), and employers cannot exclude part-time or seasonal employees as a class under IRS rules. Starting in 2025, under SECURE 2.0, employees who have worked at least 500 hours per year for two consecutive years must be allowed to participate unless they fall into a specifically excluded class.
What types of employees can be excluded from a 401(k) plan?
Employers can exclude certain classes of workers, including union employees, non-resident aliens, and leased employees. However, excluding any group typically triggers additional non-discrimination testing requirements.
What is the difference between an eligibility date and an entry date?
The eligibility date is when an employee has met all the requirements to participate in the plan. The entry date is when they actually enroll. These are often different because most plans designate specific dates (such as the first of the quarter) when employees can formally join the plan.
Disclosures
¹ This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
