Am I Too Old To Start A 401(k)?

Older couple out in nature

There is no maximum age for participation in a 401(k) plan. As long as you are still working, you are never too old to contribute. If your employer offers group benefits that include a 401(k), you have an excellent way to save for retirement. No matter your age, if you are still working, you can take advantage of the tax benefits and any matching contributions from your employer. If you are over 59.5 years of age, you can withdraw from a 401(k) without penalty. If you need more information about participation in a 401(k) plan, speak with our knowledgeable agent.

Advantages Of Opening A 401(k)

  • Participation in a 401(k) plan allows you to set aside funds for retirement on a pre-tax basis, which lowers the amount of income tax you pay.
  • This type of retirement plan provides the potential for capital appreciation when 401(k) funds are invested in stocks, bonds, mutual funds, etc.
  • You may receive matching funds from your employer, which can substantially increase your savings.
  • A 401(k) provides a more disciplined approach to saving and investing for retirement, as you are consistently contributing to retirement assets every pay period.

How To Get Started With A 401(k)

When you open a 401(k), you will need to pick your investments. Typically, your employer will work with an investment broker to provide a list of options. You can pick from this list based on a risk level within your comfort zone. You will need to consider your income and budget in deciding how much to contribute. An important factor is employer matching. If your employer will match you dollar for dollar up to a certain amount, you will want to take advantage of the match as much as possible.

Does Age Affect Annual Contribution Limits?

Employees are limited as to how much they can contribute to a 401(k) every year based on their age and compensation from the employer that sponsors the plan. If you are 50 or older, you are entitled to contribute an additional amount, which is known as a catch-up contribution. However, your total contributions in a year cannot exceed the compensation you receive from your employer. Effective 2019, the standard annual contribution limit to a 401(k) is $19,000, and the catch-up contribution limit is $6,000. This means that if you are 50 or older, you can contribute up to $25,000 a year, provided it does not exceed your annual compensation.

At What Age Are You Required To Start Taking Distributions?

When you participate in a 401(k) plan, you are required to take minimum distributions every year, beginning in the year you turn 70.5, but the first distribution can be delayed until April 1 of the following year. After that, required minimum distributions must be taken by the end of the calendar year. However, if you are still working at age 70.5, it is usually possible to delay the required distributions until the year you retire, provided you do not own more than five percent of the company.