When Do 401(k) Contributions Start?

Saving for retirement is a fundamental aspect of long-term financial security, and 401(k) plans serve as a primary vehicle for many. These employer-sponsored plans offer tax advantages, allowing participants to save directly from their paychecks before taxes are deducted. Understanding when contributions to a 401(k) plan begin is important for new participants, as it directly impacts building retirement savings. Starting contributions early can significantly benefit from compound growth over time.

Meeting Eligibility Requirements

Before an employee can begin contributing to a 401(k) plan, they must satisfy specific eligibility criteria established by their employer, which align with federal regulations. A common requirement is that an employee must be at least 21 years old. Additionally, a service requirement often mandates completing 1,000 hours of work within a 12-month period. This service period defines the “eligibility date,” marking when an employee has met all conditions to participate.

Employment status also plays a role, with many plans requiring full-time or permanent part-time status. Recent legislation like the SECURE Act introduced provisions for long-term part-time employees, requiring their eligibility for elective deferrals if they work at least 500 hours per year for two consecutive years, effective in 2025. The precise eligibility rules are detailed within each employer’s specific plan document.

Enrolling in a 401(k) Plan

Once an employee meets eligibility, the next step involves the enrollment process for the 401(k) plan. For active enrollment, employees take steps like completing forms, which may be paper or online. During this process, participants select their contribution percentage and choose investment options.

Many employers utilize automatic enrollment, where eligible employees are defaulted into the 401(k) plan unless they opt out. This default participation often includes an initial contribution rate, commonly around 3% of wages, and an allocation to a qualified default investment option, such as a target-date fund. The SECURE 2.0 Act, effective for many new plans starting in 2025, mandates automatic enrollment with a default rate between 3% and 10% of salary, which must increase annually by 1% until it reaches 10% to 15%. Enrollment periods can vary, occurring at specific times like open enrollment or upon meeting eligibility, or on an ongoing basis for new hires.

Starting Employee Contributions

After an employee has met eligibility and completed enrollment, payroll deductions for 401(k) contributions depend on the plan’s specific entry dates. An “entry date” is the designated calendar date when an eligible and enrolled employee can begin participating and have contributions deducted. These entry dates are not necessarily immediate upon eligibility or enrollment; they can be set quarterly, semi-annually, or monthly. For example, if an employee becomes eligible in February but the plan has quarterly entry dates, contributions might not begin until April 1st.

Once an entry date is reached and enrollment is complete, contributions typically commence with the first payroll period that follows. Deductions are taken from each subsequent paycheck, reflecting the contribution rate selected by the employee. There can be a short administrative processing time between when enrollment details are submitted and when the first deduction appears on a paycheck. The Department of Labor requires employers to deposit employee contributions as soon as administratively feasible, no later than the 15th business day of the month following the withholding.

Starting Employer Contributions

The timing for employer contributions to a 401(k) plan, such as matching or profit-sharing contributions, can differ from employee contributions. Matching contributions often begin concurrently with employee contributions, provided eligibility and enrollment requirements are met. Some plans may impose additional conditions or a separate waiting period for employer contributions. For instance, a plan might allow employee deferrals immediately but require a year of service before matching contributions begin.

Profit-sharing contributions are typically discretionary and often made annually by the employer after the plan year. These contributions may have distinct eligibility criteria, such as working a full plan year or a minimum number of hours, and being employed on the last day of the year. The employee’s ownership of these employer contributions is subject to a vesting schedule, which can be immediate, graded over several years, or cliff vesting after a set period. This schedule dictates when the employee gains full rights to the funds. Details for all employer contributions, including their timing and vesting, are outlined in the plan’s Summary Plan Description (SPD).