What Is a Starter 401(k)?

Starter 401(k) plans make it easier for employers to offer a retirement plan to employees and for employees to save for their future.

A couple who embraced early retirement sit on the beach together.
(Image credit: Getty Images)

The fear of not having enough money to last throughout retirement is real. The SECURE Act, which was officially enacted on Jan. 1, 2020, was drafted to address this problem, by changing a variety of retirement account rules. Fast forward to 2022, when Congress went one step further with the SECURE 2.0 Act of 2022 and the creation of Starter 401(k)s.

In 2020, about 75% of non-retired adults had at least some savings set aside for retirement. About 25% did not have any, according to the Federal Reserve. Today, of the non-retirees who have some type of retirement account, only 40% believe their retirement savings are on track.

What are Starter 401(k) plans?

Beginning in 2024, employers that do not already sponsor a retirement plan can offer their employees a “Starter 401(k) deferral-only” program. Employees are automatically enrolled (but they can opt out of the program if they wish) with contribution levels of at least 3% of their salary. They can also choose to contribute at a different level. 

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Employees can increase their contributions to as much as 15%, but they cannot contribute more than $6,000 per year, with a $1,000 catch-up contribution beginning at age 50. After 2024, the contribution limit will be adjusted for inflation in multiples of $500, rounded down. 

Starter 401(k)s have lower saving limits than standard 401(k)s, and employers cannot contribute to the account. Employees can also tap into their 401(k) plans early without paying penalties (they are still subject to taxation). They can withdraw up to $1,000 per year and avoid the 10% penalty (for people who have experienced a family or personal financial emergency). This rule also permits certain penalty-free early withdrawals in the case of domestic abuse.

The Starter-401(k) Act of 2022 was introduced by Senators John Barrasso (R-WY) and Tom Carper (D-DE), both of whom sit on the tax-writing Senate Finance Committee. 

“Small businesses are the biggest employers in so many communities nationwide. They deserve the opportunity to provide their employees with better options to save more for retirement,” Senator John Barrasso (R-WY) said in a statement as reported by the ASPPA. “Our bipartisan bill ensures that small businesses can access streamlined plans without complex regulations. This will help more hard-working Americans save money and achieve a more secure financial future.”

How are starter 401(k) plans different from standard 401(k) plans?

For employees:

  • Enrollment is automatic
  • The annual contribution limit is $6,000 instead of $22,500
  • Catch-up contribution limits are $1,000 instead of $7,500
  • Employer contributions are not allowed

For employers:

  • Starter 401(k)s are simplified and easier to administer than many standard 401(k)s 
  • They streamline regulations and lower costs for small businesses and start-ups
  • Employers are exempt from the administrative burden of IRS compliance tests
  • Because employer contributions aren’t allowed, record-keeping is less of an issue

Which companies offer starter 401(k) plans?

Any employer that does not already offer a 401(k) plan for its employees can offer a starter 401(k) plan. More specifically, if neither the employer nor a predecessor employer has another qualified retirement plan for the year in which the starter plan is offered, the company can offer a starter 401(k) plan. There is an exception for an employer with a retirement plan in which the only participants are those covered by a collective bargaining agreement (CBA).

Who can participate in a starter 401(k) plan?

If the company you work for offers a Starter 401(k) plan, you may be eligible to contribute, provided you aren’t covered by a collective bargaining agreement that included a good faith attempt to negotiate retirement benefits. You may also be required to meet your company’s age and service requirements.

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Kathryn Pomroy

For the past 18+ years, Kathryn has highlighted the humanity in personal finance by shaping stories that identify the opportunities and obstacles in managing a person's finances. All the same, she’ll jump on other equally important topics if needed. Kathryn graduated with a degree in Journalism and lives in Duluth, Minnesota. She joined Kiplinger in 2023 as a contributor.