Should 18-Year-Olds Be Allowed to Have 401(k)s?

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According to a report by HiCapitalize, over 71 million Americans have access to 401(k) accounts, which are tax-advantaged retirement plans that allow individuals to save pre-tax income and accumulate wealth tax-deferred. However, a significant portion of the country’s youngest workforce is currently excluded from these benefits. To address this issue, a group of senators has introduced a bill aimed at expanding access to retirement savings for young Americans.

Current laws allow employer-sponsored 401(k) plans to be offered to younger workers, but many employers set the minimum age requirement at 21. The recently reintroduced “Helping Young Americans Save for Retirement Act,” sponsored by Senators Bill Cassidy and Tim Kaine, seeks to lower the minimum age to 18. This legislation would mandate that employers offering retirement plans must include employees aged 18 and above.

The proposed bill involves revisions to the Internal Revenue Service code and the Employee Retirement Income Security Act of 1974 (ERISA) to make 401(k) plans and other ERISA-governed retirement plans accessible to younger employees. In a joint statement, Senators Cassidy and Kaine emphasized the importance of enabling young workers to save for retirement early in their careers, highlighting the significance of long-term financial planning.

The bill, previously introduced in November 2023, aims to eliminate barriers that deter companies from extending retirement benefits to younger employees, such as costly provisions that make covering younger workers financially burdensome. By relaxing rules around mandatory audits for pension plans covering individuals under 21, the legislation seeks to encourage employers to include younger workers in their retirement savings programs.

Advocates of the Helping Young Americans Save for Retirement Act stress the benefits of instilling a habit of consistent retirement contributions in young individuals. Early contributions to retirement accounts can compound over several decades, potentially ensuring a more secure financial future for the next generation of savers.

For young adults who do not have access to 401(k) plans, it is essential to explore alternative saving options. Various savings and investment accounts do not have age restrictions, allowing individuals to start saving for their future regardless of their age. Parents can also help children open custodial accounts, such as Roth IRAs and brokerage accounts, to kickstart their savings journey.