401(k) Eligibility and Contribution Limits

Am I eligible to participate in my employer’s 401(k) plan?

Usually you are eligible to join a 401(k) plan if you:

• Are an eligible employee of a company that offers such a plan


• Are over the age of 21


• Have worked for the company for a specified length of time (not to exceed 1 year).

For full information on the rules governing your employer’s 401(k) plan, ask your plan administrator or human resource representative for a Summary Plan Description (SPD).

How much can I contribute?

Your employer’s specific 401(k) plan will allow you to contribute up to a certain percentage of your before-tax pay; tax law limits the maximum you may contribute each year. If you are age 50 or older, you may make catch-up contributions. That is, you are allowed to contribute extra amounts over and above your before-tax contribution limit.

In 2007, the maximum dollar amount the law allows an employee to contribute from before-tax pay is $15,500. If you’re 50 or older by the end of the year, you can contribute an additional $5,000, for a total of $20,500.  In years after 2007, your contribution limit will be increased periodically to adjust for inflation.

Your employer may make matching contributions

Not all employers make matching contributions, and those who do may contribute at different levels. A typical match might be 25 to 50 percent of your own contribution up to a certain level. Your own contributions to your 401(k) plan are automatically yours to keep, but you may have to be "vested" before you are entitled to your employer’s matching contributions. This means having a certain level of service with your company, often three years. Some plans have graduated scales for vesting. For example, you may be 50% vested after two years and 100% vested after three years. With other plans, you may be entitled to receive your employer’s contributions immediately, without waiting to be vested. Be sure to fully understand your 401(k) plan before enrolling.