401k contribution limits for the employer match

Review the key aspects of 401k contribution limits and how to maximize employer matching to enhance your retirement savings effectively. Clarify how 401k matches work and the strategies for optimizing employer contributions.

By Douglas Wade, Attorney

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Table of Contents

Introduction

What Are the Advantages of a 401k?

How Does 401k Employer Match Work?

Are There Disadvantages to 401k Employer Matches?

401k Employer Contribution Limits

Introduction

401k accounts are common employer-offered pension accounts here in the US. A 401k account allows employees to put aside a portion of their pre-tax wage for retirement. Employers will usually match the employee’s contribution up to a certain amount. Between both the employee contribution and employer match, employees can build a nest egg for retirement. The key is to understand the 401k contribution limits and the maximum employer match so that you can maximize your retirement savings.

What Are the Advantages of a 401k?

The main advantage of a 401k plan is that it is extremely tax efficient. Employee contributions are made pre-tax, so it can lower the amount the employee is being taxed. The money in the 401k is also not taxed until it is withdrawn.

The other benefits of a 401k plan are:

Employees will receive extra contributions through an employer match. There is usually a contribution limit for the employer match, but the employee can contribute more than the contribution limit. It just means that they won’t receive an additional employer match above that contribution limit.
401k accounts are invested pensions so the money will grow in the account which can further grow the employee’s nest egg up to their retirement date. You will not be taxed on the growth of the investment – 401ks are only taxed when the money is withdrawn.
Most 401k providers allow the employee to choose how the money is invested. They will have multiple plans that allow employees to choose the risk of the investment. Some 401k plan providers may even offer sustainable investment options.

How Does 401k Employer Match Work?

Employers will set two contribution limits:

Maximum amount of your annual salary they will match.
Percentage match

For example, an employer may choose to match up to 5% of an employee’s annual salary. They can choose to match the employee’s contribution dollar to dollar up until that cap. Or they could choose to match 50% of the employee’s 401k contribution with an annual cap of 5% up to that annual cap.

Employees are advised (where possible) to consider their 401k contributions strategically in order to get the maximum employer match. This additional money can make a huge difference to an employee’s pension nest egg.

Find out how your employer approaches the employer match so you can calculate what you need to contribute to your pension each pay period in order to receive the maximum employer match. From there, you can calculate if you are able to contribute that much on a regular basis. If possible, it is financially beneficial to maximize this employer contribution. You could also increase your 401k contributions if you wish. This will allow you to build your retirement nest egg faster. There may be tax benefits to increasing your 401k contributions to avoid entering a higher tax bracket or just reducing your overall tax bill.

Are There Disadvantages to 401k Employer Matches?

The employer matches might be subject to a vesting period. This means that you may have to work for your employer for a minimum period in order to keep the employer matched 401k contributions. Any money you contribute will of course be yours, regardless of how long you are with the company. It is just the employer match that can have a vesting period.

Not all employers do this, so check your employer’s 401k matching policy. The vesting period will also vary between employers. Employers sometimes do this to incentivize staff to stay with the company for a period of time – it is often expensive to hire and train staff, so it is beneficial to employers for staff to stay with the company for a year or two.

401k Employer Contribution Limits

The IRS sets the limit for how much you and your employer can contribute to your 401k. There are often different contribution limits based on the age of the employee.

In 2024, the IRS has set a 401k contribution limit of $23,000 per year. The employer match does not count towards this limit.

Employees over 50 years old will get additional contributions to allow them to boost their 401k before retirement. They can contribute an additional “catch-up contribution” of $7,500 per year.

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401k contribution limits for the employer match

Introduction

What Are the Advantages of a 401k?

How Does 401k Employer Match Work?

Are There Disadvantages to 401k Employer Matches?

401k Employer Contribution Limits

What Is a Pay Stub and Why It Matters for Employees and Employers

What Are the Proper Steps to Fire Someone in California?

How Long Does a Misdemeanor Stay on Your Record in California?

How Do I Prepare a Script for Firing Someone?

What Is Involved in a PAGA Lawsuit?

What Are the Rules for 10-Minute Breaks?

Can I Work Six Hours Without a Lunch Break?

What Can I Do If My Employer Didn’t Pay Me on Payday?

What Qualifies as a Hostile Work Environment in California?

When Is a Doctor’s Note for Work Required in California?

What Does California Law Say About Final Paycheck Rules?

Can an Employer Deny a Doctor’s Note?

How Much Can You Sue an Employer for Misclassification?

How Serious Is an EEOC Complaint?

Do You Have Sample Letters for Termination of a Contract?

What Is a WARN Notice in California?

What Is FICA and How Does It Impact Payroll Taxes?

What Is At-Will Employment and How Does It Impact Employee Rights?

Employers Should Exercise Caution When Terminating Employees After Disability Leave

What Is FUTA? 2025 Rates and How to Calculate FUTA Tax

What Is the Difference Between a 1099 Contractor and an Employee?

How Do Contractors Typically Get Paid? Payment Methods and Legal Guidelines

What Is the Definition of a Non-Exempt Employee?

Can Union Representatives Be Present at Disciplinary Meetings?

What Is an FTE (Full-Time Equivalent)?

What Are the Signs of Unfair Treatment at Work?

What Is a Statutory Employee on a W-2 Form?

What Laws Protect Employees From Workplace Bullying?

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