Getting the Most From Your Employer 401(k) Match

Coworkers discuss their 401(k) program at work during an HR meeting.
Photo:

Klaus Vedfelt / Getty Images

Putting money into a 401(k) plan is one of the best things you can do when planning your retirement. That's because your employer may match the money you put into your account. If you work at a place that offers a 401(k) match benefit, when you put money from your paycheck into your 401(k), your employer puts money into the account, too.

If you aren't sure if your company will match your contributions, or what the details of your company match are, you should reach out to your 401(k) plan manager at work or the Human Resources department.

Key Takeaways

  • Some employers offer a 50% or 100% matching benefit, while others won't match any of your contributions.
  • If you fail to put money into your 401(k), you give up the matching amount as well.
  • The matching contribution is free money from your employer, who is contributing to your retirement savings.
  • Your 401(k) contributions grow tax-free, meaning your investment earnings aren't taxed each year.
  • When you withdraw funds from a traditional 401(k) in retirement, you'll pay income taxes on those amounts.

Stretching the Match

Some employers offer a 100% matching benefit, while others don't match what the employee puts into a 401(k) at all. Others will ofter a 50% or partial match on your contributions.

Some plans may offer a lower-percentage contribution match on a higher percentage of your pay. For example, a company might match 50% of the first 8% of your pay rather than matching 100% of the first 4% of your pay. This is done so employees will put more in their accounts. This strategy is called "stretching the match."

Although your employer might be trying to encourage you to save more by offering a partial match, a study from Vanguard found that 401(k) savings and plan participation rates actually decline.

Note

Think of matching funds as free money you receive from your job after you make pre-tax contributions to your 401(k) plan from your paycheck. If you fail to put money into your 401(k), you give up the your employer's matching amount.

Examples of Employer Matching

Your employer might decide to match 6% of your 401(k) contributions. When you contribute 6% or less of your pre-tax annual income to your plan, your employer will match your contributions. You might get a full match or a partial match.

Partial Match Up to the First 6%

Often, a partial match is 50% of what you contribute. In that case, your employer would place 50 cents into your 401(k) plan for every dollar you put in, up to 6% of your gross salary for that year. That means your employer would actually only match 3% of your salary, but you would have to put in 6% of your salary to get the full match.

As an example, if you earn $50,000 a year and put at least 6% of your paycheck into your plan, you'll receive a matching amount from your employer of $1,500 for that year. That's because 6% of $50,000 is $3,000, and your employer will put in half that amount, which is $1,500.

When you add that amount to what you put in, you would get a total of $4,500 put into your 401(k) for the year - but you would only take out $3,000 from your paycheck.

That means you would put $250 in per month, and would receive an additional $125 per month from your employer, for a total of $375.

Dollar-for-Dollar Match Up to 5%

Your company might include a dollar for every dollar you put in your 401(k) plan until you reach a total of 5% of your before-tax pay for the year. If you earn $50,000 and you add your 5% to the plan, that's $2,500 you've contributed. Then, your employer will match 100%—also $2,500. You'll have a total of $5,000 for the year.

You and your employer would each contribute a little over $208 per month. Your contributions would double as a result. If you're trying to decide between two jobs and you're looking at the amount they'll match when you contribute to your 401(k), make sure you know if it's a partial match or a full match, as that can make a big difference.

Note

You might have to work for your employer for a certain period of time before the company will begin matching.

Contribution Dollar Limits

The Internal Revenue Service (IRS) has established annual contribution limits for 401(k) plans. The contribution limits for 2022 and 2023 are as follows:

  • For 2022, you can contribute up to $20,500 of pretax income to a 401(k). If you are 50 or older, you can contribute another $6,500 in what are called "catch-up contributions."
  • For 2023, you can contribute up to $22,500 of pretax income to a 401(k). If you are 50 or older, you can contribute another $7,500 in catch-up contributions.

The amount of money added to a 401(k) account by you and your employer combined cannot exceed the lesser of:

  • In 2022: $61,000 ($67,500 including catch-up contributions).
  • In 2023: $66,000 ($73,500 including catch-up contributions).
  • The total amount contributed must be less than 100% of your compensation.

Note

For 2023, the individual 401(k) plan contribution limit is $22,500, and the catch-up contribution for those 50 or older is $7,500 in 2023.


Vesting Schedule

The money you add to your 401(k) plan is yours to keep, no matter when you leave your job. However, the amount of money put in by your employer will likely be subject to a vesting schedule.

Note

If you're close to becoming fully vested in your 401(k), you might want to hold off on that job search until you vest if you only have a few months left, unless your salary will go up a significant amount. You might gain quite a bit more in your 401(k) by waiting until you are fully vested before you leave.

With vesting, you might have to work for the company for a certain period of time before you can take your employer's matching contributions with you when you leave your job. When you have fully vested, that means that all the money your employer put into your 401(k) is yours to keep, even if you leave your job before you retire.

Frequently Asked Questions (FAQs)

What does 6% 401(k) match mean?

A 6% match to your 401(k) means that if you contribute 6% of your pre-tax salary to your 401(k), your employer will match that amount. For example, if you earn $50,000 and you contribute 6% to the plan, you've added $3,000. Your employer would also contribute $3,000. That would mean you and your employer would each contribute $250 per month.

When does the year end for a 401(k) match?

IRS contribution limits reset on Jan. 1 for 401(k)s. Any contributions and matches made during the year (up until Dec. 31) count toward your total contribution limit for the year. Your employer might make matching contributions whenever you do, or it may deposit at less frequent intervals, say, quarterly or yearly.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Vanguard. "Stretching the Match: Unintended Effects on Plan Contributions."

  2. IRS. "Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits."

  3. FINRA. "401(k) Basics."

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