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How the Employer Match Works With the 401(k) Limit


401(k) is an employer-sponsored, tax-advantaged retirement plan. You fund this account by contributing a set percentage of your paycheck into the account. One of the biggest perks of a 401(k) plan is that employers have the option to match your contributions to your account up to a certain point. While the IRS places annual contribution limits on 401(k) contributions, employer matches do not count toward that limit. However, there is a higher annual limit for overall contributions, which does include employer matching. A financial advisor can help you work through any questions about how your 401(k) works.

401(k) Contribution Limits

There are two sides to your contribution: what you provide as the employee and the match from your employer (if applicable). You can only contribute a certain amount to your 401(k) each year. This contribution limit includes deferrals that you elect to be withheld from your paycheck and invested in your 401(k) on a pre-tax basis.

Here’s a look at the annual 401(k) contribution limits:

  • 2024: For tax year 2024 (filed by April 2025), the limit is $23,000. Savers who are age 50 or older can make up to $7,500 in catch-up contributions for a total contribution of $30,500.
  • 2023: For tax year 2023 (filed by April 2024), the contribution limit is $22,500. Savers who are 50 or older can make up to $7,500 in catch-up contributions for a total contribution of $30,000.

Employer Match Does Not Count Toward the 401(k) Limit

The good news is that these limits do not include employer matches. If you contribute, say, $23,000 toward your 401(k) in 2024 and your employer adds $5,000, you’re still within the IRS limits. However, there is a limit that applies to total contributions, meaning the sum of the employee portion and employer match.

In 2024, the IRS limits total 401(k) contributions to $69,000 or 100% of the employee’s compensation, whichever is less. That amount rises to $76,500 with catch-up contributions.

In 2023, total 401(k) contributions are capped at $66,000 or 100% of the employee’s compensation, whichever is less. That amount increases to $73,500 with catch-up contributions.

Employer Match Explained

There are a few different ways employers can match an employee’s 401(k) contribution. While the word “match” can imply they contribute the exact same amount that you do, that’s often not the case. Sometimes they’ll choose to contribute only a certain percentage of how much you contribute to your 401(k). For instance, matching just 50% of your contributions. Even in cases where they match 100% of your contributions, they may only do so up to a maximum amount, whether that’s a dollar amount or a percentage of your contribution or salary.

One percentage plan employers implement is matching 100% of your contribution, but capping it at a certain percentage of your salary. For example, let’s say you make $40,000 a year and your employer offers to match contributions up to 6% of your salary, or $2,400. For your employer to contribute that max amount, you would also need to contribute at least $2,400. Keep in mind that if you contribute more than that maximum, your employer will not match the extra.

Another employer may choose to match 50% of contributions, which again is limited to a certain contribution amount. Take the same example of a $40,000 salary and a 6% limit. Contributing that same 6% of your salary would get you $1,200 in employer-matching contributions. In this scenario, pay close attention to the language that your HR department uses in describing this benefit. It may be that the 6% refers to the maximum amount that they’ll contribute – in other words, they’ll contribute 6% of your salary ($2,400) so long as you contribute enough to hit that under the 50% schedule (in this case, $4,800).

Alternatively, it might mean that the 50% matching applies only to employee contributions equaling 6% of their salary. In this case, you wouldn’t be able to get more than $1,200, because they wouldn’t apply that 50% match to any contributions beyond 6% of your salary.

Employer Match with a $40,000 Salary (Example)

Employer Match PlanEmployer Match MaximumExample ContributionEmployer Match ContributionContribution Needed to Meet Employer Match Maximum
50%6% of Salary ($2,400)$1,200$600$4,800

Employer Match and You

SmartAsset: How the Employer Match Works With the 401(k) Limit

Employer match programs are a way for employers to keep employees happy and cared for. They’re also a way to retain employees. That’s because many matching programs come with a vesting schedule. This means that you don’t have access to the full matching funds until you’ve been with the company for a certain period. The prospect of losing out on that money may keep an employee around longer.

In almost all cases, it makes sense to max out your employer’s matching offer. This is effectively free money, and all you have to do to get it is to be a responsible saver.

With that said, you shouldn’t contribute more than you can afford. Saving for retirement is crucial, yes, but you shouldn’t max out your contributions if it means underpaying your mortgage or not having an emergency fund. That’s especially true if you don’t think you’ll stay with the company long enough to have it fully vested. After all, this would reduce the benefit of matching. Still, if it’s financially feasible for you to max out your matching, do it.

Bottom Line

SmartAsset: How the Employer Match Works With the 401(k) Limit

The most important thing to understand is that any employer matching that your company does into your 401(k) account does not impact your individual contribution limit. This means that maximizing these contributions can be a great way to get more money into your retirement account, and you don’t have to save or earn that money. However, the IRS does have separate limits on total contributions, which can increase from year to year. If you have any questions regarding your 401(k) program and employer match, ask your HR representative. That way, you can have a better idea of how to contribute and how much you should have in your 401(k) to retire.

Tips on Saving for Retirement

  • If you’re looking for hands-on guidance to plan for retirement, a financial advisor can help. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve 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.
  • To maximize your retirement savings, you may want to open other retirement accounts like IRAs. An IRA is an individual retirement account, which means that you’re responsible for opening and funding the account. A Roth IRA is a variety that backloads the tax benefits so you get tax-free growth and retirement income rather than an upfront tax deduction.
  • Want to make sure you’re on track for a secure retirement? SmartAsset’s retirement calculator can help you determine how much you’ll need for retirement.

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