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What Is a 401(k) Match?

In this article

  1. How does a 401(k) match work?
  2. What Is the average 401(k) match?
  3. Types of matching programs
  4. Contribution limits
  5. FAQs
  6. Final thoughts: How to maximize your 401(k) match

A 401(k) match is the amount or percentage of money your employer contributes toward your retirement account, in addition to your own contributions. If you work for a company that offers this benefit, you can take full advantage of this perk to help maximize your savings.

Chime Team • February 11, 2022

Most employers offer their employees the opportunity to contribute to a 401(k) to grow their money for post-retirement use. A 401(k) is the standard employer-sponsored retirement plan used by for-profit businesses. In addition, in 2021, 51% of employers who offered a 401(k) program also provided matching contributions for their staff. 

A 401(k) match can be one of the greatest benefits a company can offer its employees — helping them grow their retirement savings over time. And a larger annual contribution makes all the difference when it comes to compound interest.

Typically, the money that you put toward your 401(k) plan is a percentage of your salary or an identified amount that you choose to be taken out of your paycheck before tax deductions are made. According to the U.S. News & World Report, Vanguard’s 401(k) plan data showed that in 2020 the average 401(k) employee contribution was 7% of their pay. Note that there are required contribution limits and withdrawal regulations imposed by the Employee Retirement Income Security Act (ERISA); however, the sponsoring employer ultimately decides the specific terms of each 401(k) plan. 

No matter how much you choose to put toward your 401(k), most companies offer some kind of match to those funds. Every company’s program operates differently, as some offer full or partial matches. Let’s explore more of how matching contributions work and how you can make the most of this benefit to advance your savings goals.

How does a 401(k) match work?

For a 401(k) match, employees usually set aside a percentage of their salaries for their retirement plan, and most employers who offer matching programs contribute a percentage of an employee’s contribution to their account. If your employer offers 401(k) matching contributions, it will match the percentage of your salary you elect to deposit into your 401(k) account, but only up to a certain amount.

Each 401(k) plan has different terms. Your employer may choose to match contributions dollar-for-dollar, offer a partial match (a percentage of your match), or will have other set limits that your plan’s documents will detail. Some employers may also make non-matching 401(k) contributions, but we’ll talk more about the different options in a little bit. 

Employers aren’t required to match contributions, and regardless of the matching structure, your employer will likely cap your match at a certain percentage of your yearly salary.  

401(k) vesting

Companies often have a vesting schedule that determines when you get to keep the funds contributed to your plan by your employer in the event you leave the company. Immediate vesting means you get to keep all your employer’s contributions to your 401(k) as soon as you earn them, but this is rare. Some 401(k) plans vest employer contributions over the course of several years. This means you have to stay at the company for a certain period of time before you fully own your employer’s matching contributions.

Since it may take several years to earn your employer’s matching contributions, employers use vesting schedules to incentivize employees to stay at the company and think twice before they switch jobs. When you complete this proposed schedule, you are said to be “fully vested.” Every company has its own matching methodology and vesting rules, so talk to your employer if you’re not sure how your particular 401(k) match works. Remember, your own contributions are always 100% vested.

You usually sign up for your 401(k) program through your employer during your onboarding phase or within the first few weeks of employment. When you start a new job, be sure to check to see if your new employer offers a 401(k) plan, and if they do, find out when you can sign up and start to participate. Be sure to take the time to learn the terms of the program, though, as being prepared is super important when it comes to sticking to the financial plan you’ve set for yourself.

What Is the average 401(k) match?

The National Association of Plan Advisors (NAPA) states that in 2021, the average employer 401(k) match was 4.6%, according to data from Fidelity, which helps more than 40 million people invest their own life savings. This hasn’t changed much in a decade, as statistics from the U.S. Bureau of Labor Statistics noted in 2011 that “the median plan matches up to 5% of earnings.” 

In 2020, it was also reported that employees contributed approximately 8.8% to their 401(k) plans while employers contributed a match of around 4.6%. It’s safe to say that there’s no set-in-stone number for what an employer match should be, but if your company offers a match between 3% and 5%, that’s a thumbs up for your retirement savings.

Again, since not all companies offer a match to their employees, finding a job that has one as part of its benefits package is a pretty big deal. After all, a 401(k) match is essentially free money — and it’s money that could make a huge difference in your ending balance when you are close to retirement.

Types of matching programs

As mentioned above, there are a few different matching programs a company can offer, and each program has its own terms to consider. Here are 3 of the most common matches:

1. Partial 401(k) match

A partial 401(k) match is when an employer will match a percentage of the money an employee puts into their account, up to a certain amount of their annual salary.  

The most common partial match that you may have heard of is $0.50 on the dollar, for up to 6% of an annual salary. You can’t get more than 3% of your total salary, but your employer matches half of your contributions up to that.

For example, let’s say you make $80,000 per year, and you contribute 6% of your salary to your 401(k), which is $4,800. The employer will offer a 50% partial match, which would be $2,400, boosting your total amount invested for the year to $7,200. 

2. Dollar-for-dollar 401(k) match

A dollar-for-dollar match, also known as a full match, is when an employer’s contribution equals 100% of the employee’s contribution, and the employee’s total contribution for the year is capped at a specific percentage of their annual salary.

If your employer offers a full match up to 5%, this means if you contribute 5% of your salary, you’ll be matched that amount fully in contributions to your 401(k). However, if you decide to contribute 6% of your salary, your employer will still only give 5%, since that is the determined max. 

3. Non-matching 401(k) match

Also referred to as a “profit-sharing” contribution, a non-matching 401(k) contribution is when an employer makes a contribution to an employee’s 401(k) regardless if that employee makes any contributions of their own. Employers will usually base how much they give in non-matching contributions on specific factors such as the company’s annual profit or revenue growth.

Like most other 401(k) matching programs, a non-matching contribution has a cap based on a percentage of an employee’s salary. For example, your employer could determine a non-matching contribution of 4% of your yearly salary. This would be paid in only if you meet predetermined goals.

Contribution limits

You might be wondering if an employer match counts toward the 401(k) contribution limit. Whether the contributions to your 401(k) come from you or from employer matching, all matching contributions from an employer or deferrals must adhere to an annual contribution limit enforced by the Internal Revenue Service (IRS). A deferral is an expense that has been prepaid. In other words, it’s a payment made or received for products or services not yet provided.

The 2022 annual limit for the maximum you can contribute to your 401(k) from your own salary is up to $20,500, or up to $27,000 if you’re 50 or older. These limits are updated regularly, and the announcement of the next year’s limit is usually in October or November.

Pro Tip:

You don't pay taxes on matching contributions until you withdraw them in retirement!


When is the year-end date for a 401(k) match?

The 401(k) contribution deadline is at the end of the calendar year and resets on January 1. Any contributions and matches made during the year (up until December 31) count toward your total contribution limit.

Your employer might choose to deposit its match each time your contribution is deducted from your paycheck, or it may deposit it on a quarterly or yearly schedule. However, the IRS allows contributions to IRA accounts up until the tax filing deadline of the coming year. For the 2021 tax year, you can contribute to your IRA accounts until April 15, 2022.

What is considered a good 401(k) match?

Generally, a good 401(k) match is anywhere around 3.5%, as this has been the national average for about a decade. The best 401(k) match would be a 100% match up to the allowable limits since it would match any dollar you invest in your 401(k).

However, any match is considered good since it represents a risk-free return on investment and can be viewed as “free money” that you wouldn’t have otherwise.

Can I receive an employer match to my Roth 401(k)?

The short answer is yes. The long answer is that when employers make matching contributions to a Roth 401(k), the money goes into a separate traditional 401(k) account, not into the Roth account. The IRS states that you must pay regular income tax on all employer contributions when they are withdrawn. However, Roth 401(k)s usually aren’t taxed at all, as long as they are not withdrawn early. You’ll pay the taxes on the traditional 401(k) funds when you withdraw the money.

Final thoughts: How to maximize your 401(k) match

Retirement might feel a long way off for some, but you’ll want to work toward having as much as possible saved or invested for when you’re ready to stop working one day (hello, sleeping in!). 

There are several ways to improve your strategy to maximize your retirement fund. Taking advantage of your employer’s 401(k) program and its matching opportunities is the best place to start.

Be sure to start making 401(k) contributions as soon as possible at your current job or when starting a new one. Always contribute enough to get the full match; otherwise, you’re missing out on that free money!

Lastly, make things automatic. Sign up for automatic 401(k) contributions or payroll deductions, so the funds are taken out each pay period without having to think twice about it. This way, you’re consistently putting funds toward your future with no extra work!

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