Rules of 401(k) Plans

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 13, 2022

Some 401(k) plans have rules regarding participant eligibility, however most plans are functionally similar. They all have a $19,000 contribution limit and there are penalties for withdrawals before the age of 59  ½. You also must begin withdrawals no later than age 70  ½.

401(k) Plan Eligibility Rules

401(k) plans may have eligibility requirements based on age and/or service. The maximum age requirement is 21, and the maximum service requirement is 1 year or 1000 hours in a 1 year period. The IRS does not allow employers to have more restricted enrollment than that.

401(k) Plan Loan Rules

Many 401(k) plans allow participants to take out a loan of up to the lesser of 50% of their vested amount of $50,000. These loans generally have a 5 year repayment period, which may be extended if the loan is used to purchase a primary residence.

401(k) Plan Distribution Rules

401(k) plans will impose a penalty upon funds withdrawn before age 59  ½. After age 70  ½, the participant must begin making minimum distributions. These distributions are called required minimum distributions, and they apply to all employer sponsored retirement plans.

Rules of 401(k) Plans FAQs

What is a 401(k) plan?

A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.

What Are Rules of 401(k) Plans?

Most 401(k) plans are functionally similar. They all have a $19,000 contribution limit and there are penalties for withdrawals before the age of 59 ½. You also must begin withdrawals no later than age 70 ½.

What is the difference between a Roth 401(k) and traditional 401(k)?

With a Roth 401(k), taxes are paid as money is put into the retirement account. With a traditional 401(k), taxes are paid as money is taken out.

Are there other retirement savings plans other than a 401(k) plan?

Alternatives to 401(k) plans include traditional IRAs, Roth IRAs, pension plans (if your employer offers one), and 403(b) retirement plans for employees of non-profit organizations.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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