Retirement Plans Open Doors to 18-Year-Olds: Lowering the Age for 401(k) Eligibility

The “Helping Young Americans Save for Retirement Act” is pretty straightforward: it lowers the minimum age for counting service time toward eligibility for employer-sponsored retirement plans—like your 401(k)—from 21 down to 18. If you’re an 18-year-old starting your first full-time job, this bill says you don’t have to wait three years to start saving for retirement.

This change amends both the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), meaning it applies to most standard pension plans and 401(k)s. While plans still have the option to use the existing service requirements (like working 500 hours in two consecutive 12-month periods), they now have the flexibility to substitute age 18 for age 21 when calculating when a new employee can join the plan (Section 2). This is a big deal because getting into a retirement plan earlier means you can capture the power of compound interest sooner.

The Power of Starting Early

Think about the 18-to-20 age bracket. This includes everyone from high school grads entering trade apprenticeships to college students working full-time over gap years, and those starting entry-level positions right out of school. Under current law, they might have been working and contributing to Social Security for three years before they could even start putting money into a 401(k). For a worker making $40,000 a year who contributes just 5% of their salary, those three years of missed savings—plus the employer match and growth—can easily translate to tens of thousands of dollars lost by the time they hit retirement age. This bill fixes that lag, allowing those early earners to start building wealth right away.

The Administrative Catch

While this is great news for young savers, the bill includes a specific provision designed to ease the administrative transition for plan sponsors and administrators. For pension plans, any employee who becomes a participant only because of this new age 18 rule won't be counted as a participant for certain reporting requirements—specifically the independent public accountant opinion—for the first five years after they join (Section 202(c)(1)(A)). Basically, the government is saying: “We want you to let the 18-year-olds in, but we’ll give you a five-year grace period on counting them for this specific audit requirement.” This seems designed to reduce the immediate administrative burden of suddenly adding a new class of younger participants to the books.

What Happens Next

It’s important to note that this isn’t an immediate change. The bill states these new rules will apply to plan years that begin one year or more after the Act is signed into law (Section 2). So, if a company's plan year starts on January 1st, 2025, and the bill becomes law in late 2024, the changes wouldn't take effect until January 1st, 2026. This delay gives companies and plan administrators plenty of time to update their systems and paperwork, ensuring a smoother transition to the new, lower age requirement.