What Is the Average 401(k) Match?

Saving for retirement comes with its struggles. However, you may already know the rates that retirement guides recommend to you. For example, save 15% of your income per year. Or have such-and-such percentage saved by age 35. But maximizing your 401(k) savings takes a little more than contributing as you can. One opportunity waiting for many workers is 401(k) matching. Through this employer-sponsored program, you can take advantage of funds already owed to you. Here is the average 401(k) match for companies around the nation and how to make the most of it.

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What Is a 401(k) Match?

For many employees, one of the main draws of their employment is a defined contribution plan. One of the most popular options is a 401(k) plan, which you contribute to over the course of your working years. During that time, your employer may have a matching program, which means they contribute some money to that account as well. The actual dollar amount of a 401(k) match depends on the employer and your annual contribution level, though.

Your employer’s plan documents should outline the specifics of their 401(k) plan. But oftentimes you’ll run into one of these two matching styles: partial matching or full matching.

Partial matching means that your employer will contribute enough funds to match a portion of the money you put into your 401(k). However, it is only up to a certain amount. A common partial amount provided by employers is 50% of your annual contribution, up to 6% of your overall salary.

In contrast, full matching is a dollar-for-dollar match. Your employer puts in the same amount up to a monetary limit. So, for example, it may have a cap of 5% of your salary.

For the past decade, the national average 401(k) match has fluctuated between 3% and close to 5%, according to data from sources such as the U.S. Bureau of Labor Statistics and Fidelity.

Fidelity’s 2020 Facts & Insights report documents that 86% of employers offer their employees a retirement plan contribution. Of the 92% of workers with a matching option, 84% of active employees received a contribution from July 2019 to July 2020.

Fidelity further reports that employees contributed 8.8% on average, with employers contributing 4.6%. During the July 2019 to July 2020 period, that equaled an average employer retirement plan contribution of $3,560.

401(k) Matching vs. Vesting

As you now know, matching is a form of employer contribution to your retirement plan. It comes with set limits that your plan’s documents detail, which can vary.

Vesting is a way for those matching funds to become yours over time. It essentially means ownership of your account’s funds. Employees can take on a vesting schedule, meaning they own a certain percentage of their 401(k) each year. You usually vest either 25% or 33% annually, or all at once after several years. So, an employee who is 100% vested in their account owns 100% of it. The employer can’t take back ownership or forfeit this for any reason.

Without it, employees may forfeit contributed funds, such as when they terminate their employment. Working under 500 hours in a year for the span of five years can also forfeit funds.

Your own contributions are always 100% vested, though. And all employees must be 100% vested by their normal retirement age according to the plan.

SEP, SIMPLE IRA, and other IRA-based retirement plans, require all contributions to be 100% vested. A 401(k) may come with a unique qualified defined contribution plan that includes a unique vesting schedule.

401(K) Contribution Limits for 2021

There are two annual limits that apply to 401(k) contributions. The first is a limit on employee salary deferral contributions, which you make in lieu of salary. The second is an overall limit to your account. According to the IRS, the elective deferral contribution limit for traditional and safe harbor plans during 2021 is $19,500. For SIMPLE 401(k) plans, the limit is $13,500.

Then, when it comes to the overall limit on contributions, you have rules. The annual contributions cannot exceed either 100% of your compensation as an employee or $58,000 – whichever is lesser.

Anyone with a 401(k) plan age 50 and over can also make catch-up contributions. Traditional and safe harbor 401(k) plans allow $6,500 catch-up contributions in 2021. SIMPLE 401(k) plans only allow $3,000, in contrast.

How to Maximize Your Retirement Savings

Your retirement savings determine your level of comfort during your golden years. So, naturally, you want to work toward having as much as possible stored away. Here are some ways to help you do that.

Cap out Employer Match

One of the best ways to pad your retirement fund is to take advantage of the opportunities available. Your employer matching program is one of them. Contributing up to the limit of the match ensures that you receive the maximum amount your employer can give you.

Since the match is part of your plan, it’s essentially money owed to you. Going without it means you do not receive the full benefit of what your employer promised.

Choosing a lower-salary job with an employer match may even be a better option in some cases. The contributions boost your savings and can grow over time while your earnings compound.

Use Auto-Escalations Once a Year

You might already be contributing up to the match. If so, and you feel financially secure, you can consider auto-escalation.

Auto-escalation is a feature that automatically increases your contribution amount. So, for example, you can set it to increase contributions by 1% or 2% each year. Employees can use this to contribute up to 15%.

This may be a good option if your employer offers you a raise. You can take a portion of the increase and put it toward your 401(k).

Prioritize Saving

It’s tempting to use a raise elsewhere to loosen up a little. Maybe you want to treat yourself with it. But if your goal is to max out your retirement savings, then salary increases can go directly to your retirement account.

This method might work best for those who do not have an employer match offered through work. Alternative boosts can come from your tax refunds or bonuses. Even without a 401(k) plan, though, saving is crucial to a retirement fund.

The Takeaway

Saving for retirement can be exhausting. But there are ways to improve your strategy to maximize your retirement fund. Taking advantage of your employer’s 401(k) program ensures you receive the full extent of funds your employer owes you. In turn, you protect your lifestyle as you age. If you are concerned about your retirement plan’s progress, consider speaking to a financial advisor.

Tips for a Financially Successful Retirement

Navigating various investments and retirement accounts is no easy task. A financial advisor has the knowledge and experience to help you juggle each one. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Retirement planning alone is complicated, but there’s another issue to think about. Retirement tax laws in your state can heavily affect how you prepare for retirement. Learning to minimize their burden can help you maximize the savings you work hard for.