Part-time work offers more flexibility than traditional, full-time employment, but it comes with its own challenges. Part-time workers generally earn less than full-time workers. That, and the fact that they often don’t qualify for employee benefits, can make it more difficult for them to save for retirement.
Overcoming these obstacles is not easy. But part-time workers with extra cash will benefit from a new law change that came into effect on January 1.
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Easy access to workplace retirement plans
Part-time workers will now have an easier time contributing to their employers’ 401(k) plans, thanks to a provision in the SECURE 2.0 Act of 2022 that finally goes into effect in 2025. This also applies to some 403(b) plans.
Most 401(k)s require dual eligibility. Employers must allow employees who meet one of the two criteria to participate in the plan if they wish. To qualify, employees in previous years must have either:
- has completed at least one year of employment with at least 1,000 hours of service during that year, or
- Have completed at least three years of employment with at least 500 hours of service in each of the three years.
The change of law modifies the latter principle. Beginning in 2025, part-time employees need only have two years of employment with at least 500 hours of service each to qualify. It does not apply to collectively bargained plans, and service before 2021 does not count.
If you’ve been with your employer for a while, it won’t make much of a difference to you. But it can be helpful for people who haven’t been with their company long enough to save for their retirement and possibly take advantage of the 401(k) the company offers.
What this means for part-time workers.
Part-time workers may have the opportunity to contribute to their company’s 401(k), but there are a few factors to consider before deciding if this is the right move for you. The first is obviously financial. If you can’t afford to defer any of your paychecks, it doesn’t make sense for you to do so. You might be better off using your paycheck to help you pay off or avoid debt today.
If you have extra cash, the question to ask yourself is whether your employer’s 401(k) is the right place for your savings. It comes down to two things: the existence of a 401(k) match (and any applicable vesting schedule) and its investment options.
If your plan offers a 401(k) match, that’s a strong incentive to contribute at least a portion of your check to your 401(k). The match is like a bonus from your employer, but if you don’t defer any of your paychecks for retirement, you lose it.
However, if you’ve only been with the company for a few years and don’t plan to be there much longer, you may not be fully engaged. In this case, you may lose some or all of your match by quitting. If it’s possible for you, you may prefer to keep your savings outside of your 401(k).
If you don’t like the investment options of a 401(k), you may also prefer to use an IRA instead of a 401(k). IRAs offer more flexibility, which can also help you reduce how much you pay in investment fees.
Ultimately, the goal is to save money for retirement. You can accomplish this goal with a 401(k), an IRA, or both. Review your options and decide what your best course of action is for 2025. If you plan to defer money from your paychecks, set up regular transfers so you don’t forget to make them.
