Employer 401k Match: Does it Count Towards Maximum Limit?

Shawn Plummer

CEO, The Annuity Expert

401k contributions are tax-deferred, meaning you don’t pay income taxes on the money you contribute to your account. This is a significant advantage since it allows your money to grow faster. However, there are limits to how much you can contribute each year. For example, your employer may offer a matching contribution, which means the company will match a certain percentage of your contribution. But does that count towards the annual limit? Let’s take a closer look.

What Are 401(k) Matching Contributions?

An employer-offered 401(k) matching contribution is when they deposit money in your 401(k) account that equals the contributions you make, with a limit. Your boss may match your contribution or only contribute part depending on the 401(k) ‘s requirements. Some employers also make non-matching 401(K) contributions separate from employees’ contributions.

Although employer-matching 401(k) contributions are not required by law, they can be a key employee benefit that helps an organization keep prized talent and construct solid teams.

Many employers offer matching contributions to 401(k)s. The average employer contribution in 2019 was $4,100, slightly more than $1,000 each quarter.

401(k) plans that vest employer contributions over a set period of years mean that the company’s employees must ultimately stay with the organization for a specific timeframe to take ownership of matching funds.

Vesting is a way for employers to keep their best employees by rewarding them. When you finish the vesting schedule, you own all stock options.

What Is a Partial 401(k) Match?

An employer’s contribution with a partial 401(k) match is a fraction of the employee’s contribution. There is also a limit to how much the employer can contribute as a percentage of the employee’s salary.

What Is a Dollar-For-Dollar 401(k) Match?

An employer contributes the same dollar amount as their employee, up to a certain percentage of the employee’s salary, in a 401(k) plan.

A usual employer offer is matching 3% of your salary contributions dollar-for-dollar. However, my former employer bettered that by matching up to 7% dollar-for-dollar.

Non-Matching 401(k) Contributions

Employers make non-matching or profit-sharing contributions without considering whether an employee makes personal 401(k) contributions. Employers usually base their non-matching contribution amount on the company’s yearly profit or revenue growth.

Matching Contributions for a Roth 401(k)

You can only save money in a Roth 401(k) if your employer’s matching contributions go into a different traditional 401(k) account. The reason is that when you withdraw the employer contributions, you’ll have to pay regular income tax on them–there are only a few exceptions where Roth 401(k) withdrawals aren’t taxed.

Remember that with a regular 401(k) account, your contributions are taken out before taxes, and you pay income tax on the withdrawals. With a Roth 401(k), however, your contributions are made with taxes already paid and usually qualify for tax-free withdrawal Further down the road.

Does Employer 401k Match Count Towards The Annual Limit?

Do you want to take advantage of a max contribution to a 401k? Do you know if your employer’s 401k match counts towards the maximum limit? The answer is yes, but does it count as a contribution from the individual, or does it count as an employer contribution? These two factors can make a huge difference.

401(k) Contribution Limits Overview

  • Individuals can contribute up to $20,500 to a 401(k) in 2022 and $22,500 in 2023, or $27,000 if they are age 50 or over in 2022 and $30,000 in 2023.
  • An employer match to an employee 401(k) does not count toward the employee’s annual contribution limit.
  • There is a maximum amount that an employee and employer together can contribute to a 401(k). The same restrictions apply to 403(b), 457 plans, and Thrift Savings Plan (TSP).

2022 and 2023 Contribution Limits

If you’re an employee, in 2022, you may contribute up to $20,500 of your own money to a 401(k) and $27,000 if you’re 50 or older. If you’re an employee, in 2023, you may contribute up to $22,500 of your own money to a 401(k) and $30,000 if you’re 50 or older.

These are the 2022 and 2023 limits for specific retirement plans, including 401(k), 403(b), 457, and a Thrift Savings Plan.

The limit on total contributions from both the employee and employer can’t exceed the lesser of 100% of the employee’s salary or $66,000 for employees younger than age 50 and $73,500 for those age 50 or older.

How 401(k) Plan Contribution Limits Work

The 401(k) plan is a long-term savings plan designed to help people build their retirement savings. The IRS labels a 401(k) as a “qualified retirement plan,” which means it has certain tax benefits for the employee, the employer, or both.

The tax advantage for employees is that their contributions are deducted from gross income, not net income. That means less take-home pay, which lowers the employee’s taxes, and the money goes into an investment account on an ongoing basis.

For some 401(k) plans, employers can match some percentage of their employees’ contributions, but it’s strictly voluntary. The average 401(k) match ranges from 3% to 7% of the employee’s gross salary.

What Is a Good 401(k) Match?

A good 401(k) match is usually 5% to 7% of your salary, up to a dollar-for-dollar match. For example, if you contribute 5% of your $50,000 salary, your employer will contribute 5% as well, for a total contribution of 10%. If you contributed 7%, your employer would contribute the full 7%.

Alternatives To An Employer 401(k) Match

Deferred annuities can offer premium bonuses on contributions that mimic an employer’s 401(k) match with no annual limits.

For example, an annuity may offer up to an 11% bonus on all contributions for the first seven years of the annuity. The 11 percent premium bonus mimics the employer’s match, and the employee has no annual contribution limits.

Unlike a 401(k), employees can open a deferred annuity without an employer.

Next Steps

An annuity could be the answer if you’re looking for a way to contribute more to your 401(k). Deferred annuities offer premium bonuses on contributions that mimic an employer’s 401(k) match with no annual limits, making it easy to save for retirement. Use a 401(k) match calculator and request a quote today to see how much of a 401(k) you can earn from an annuity.

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Frequently Asked Questions

How Much Can I Contribute To My 401(k)?

The most you can contribute to a 401(k) is $22,500 for 2023 ($30,000 in 2022 for those age 50 or older).

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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