How Much Can a Company Match for a 401(k)?
Contributing to a 401k is one of the most effective ways to save for retirement because of the large contribution limits and the ability to receive free money from your employer.
Employers have the option of matching your contribution as long as they stay within the limits of the plan.
When you contribute money to your 401k, your employer may contribute an equal amount to your account. Many employers choose to match half of what you match, up to a certain percent.
For instance, your employer could match half of your contribution up to 6 percent of your annual salary. If you contribute 6 percent, your employer puts in 3 percent. This can help you build up your 401k balance very quickly, compared to saving on your own.
401k Match Rules
When it comes to determining how much your employer can contribute to your 401k, the decision is entirely up to the company. When a 401k is set up, the employer can set many of the rules associated with the plan. During this stage, the employer elects to contribute or not.
The employer also sets the exact percentage that it will contribute to your retirement account. The employer can change the percentage or stop matching, at any point.
Employer contributions to your retirement account must stay within the annual limit set forth by the Internal Revenue Service. As of 2019, you can contribute up to $16,500 per year to your 401k. Between you and your employer, the maximum contribution is $49,000.
The employer also cannot contribute more than 100 percent of your annual income to the account. This means that to get the maximum of $49,000 between you and your employer, you must make at least $49,000 per year.
When it comes to contributing to a 401k, you also need to understand how vesting works. Many employers use a vesting plan, which governs when you can access the money contributed by your employer.
In some cases, you gradually gain access to this money every year. In other plans, you gain 100 percent access to it after a certain amount of time. Employees who leave before becoming fully vested, must leave behind the match money with the employer.