How Does a 401(k) Match Work?

When you contribute to your 401(k), your company may also add money to your account, known as a 401(k) or company match. This money can accelerate your progress and help you build your retirement savings faster than if you were relying on your contributions alone. Ahead, we'll explore what a 401(k) match is, how it works, and more.

If your employer offers a company match, when you contribute a portion of your salary to your 401(k) account, your company also provides a matching contribution to your plan, up to the annual contribution limit.

When your employer makes a matching contribution to your 401(k), it's like getting "free money" added to your retirement savings. Thanks to the power of compounding interest, getting the full employer match over many years or even decades can significantly boost your retirement savings.

Many companies offer a 401(k) match as part of their employer-sponsored benefits package. 401(k) matching helps attract and retain talent, incentivizes employees to save for retirement, and can boost plan participation.

The details vary by company and can typically be found in the Summary Plan Description (SPD). It's important to take the time to understand how your employer's 401(k) match program works, if offered, so that you're contributing enough to receive the match. People often think they're contributing enough to receive the full company match, when in reality, they aren't.

Employers use different matching formulas, funding frequency (e.g., per payroll period, quarterly or annual), allocation conditions (e.g., must be employed on a specific date; must complete a required number of hours of service), contribution limits, and vesting schedules (all outlined in the employer's plan documents).

There are several types of 401(k) matches, including:

• Dollar-for-dollar match: Employer matches 100% of what you contribute, up to a limit.

  Example: If you contribute 5% of your salary, your employer also contributes 5%.

• Partial match: Employer matches a portion (e.g., 50%) of your contributions, usually up to a set percentage of your salary.

  Example: If you contribute 6%, your employer also contributes 3% (50% of your contribution).

• Tiered match: Employer matches different percentages at different levels (for instance, 100% match on the first 3% of your salary, then 50% match on the next 2%).

  Example: If you contribute 5%, your employer makes a 100% match on the first 3% and a 50% match on the remaining 2%.

• Discretionary match: Employer may choose whether and how much to match each year, but the contribution still depends on you making deferrals. These matches are often tied to company performance.

  Example: Employer may decide to match 25% of your contributions one year and 50% the next.

Let's look at how a partial match works in practice. Suppose you earn $6,000 per month, and your employer matches 50% of your contributions up to 6% of your annual salary each month. To receive the full employer match, you'd need to contribute at least $360 per month (6% of your monthly wages) to your account, and your employer would kick in an additional $180 (50% of $360) to match your contribution. As a result, your 401(k) account would see a combined contribution of $540 per month.

In short, yes, you can contribute more than the employer match amount. Your employer's matching contributions do not count toward the individual deferral limit; however, there is a cap on the combined (employee and employer) contribution amount (see below).

For 2025 and 2026, the 401(k) individual contribution limits, set annually by the IRS, are:

• Employees under age 50 (2025): $23,500 personal limit; (2026): $24,500
• Employees ages 50 to 59 and 64 and up (2025): $31,000 personal limit; (2026): $32,500
• Employees ages 60 to 63 (2025): $34,750 personal limit; (2026): $35,750

The combined employee contributions, after-tax contributions and employer contributions are:

•  (2025): $70,000 combined employee, after-tax and employer contribution limit; (2026): $72,000

  Please note that catch-up contributions are not counted toward this combined limit.

Generally, the matching contributions deposited into your 401(k) aren't immediately taxable to you. Instead, you'll usually have to pay taxes on the money when you withdraw it.

However, companies now have the option to offer a Roth employer matching contribution feature thanks to a provision within the SECURE 2.0 Act of 2022. The provision permits (but does not require) participants who are fully vested to have their matching contribution made as a Roth contribution. While this feature is still somewhat new, your employer might ask if you want your match or other employer contribution(s) to be credited to your account as a Roth contribution. Just like an employee contribution made to a Roth 401(k), employer contributions made as a Roth contribution are after-tax and will be taxable to you in the year you receive the contribution. But the earnings and principal will generally be tax-free for qualified withdrawals in retirement. (Also, starting in 2026, if you made more than $150,000 in the prior year, your catch-up contributions are required to be Roth contributions.)

The contributions you make to your retirement plan, the employee contribution amount, is immediately vested (meaning you have ownership rights to the money), even if you part with your employer. But typically, the employer's contributions to your 401(k) aren't considered yours until you've been with the company for a set period of time, known as the vesting period.

Many companies have what's called a vesting schedule. As outlined in your company's plan sponsor documents, vesting schedules define the terms of the vesting agreement, indicating the length of time you must stay with the company to receive the full employer 401(k) contribution amount. In other words, you might not be able to keep all the money your employer invests on your behalf until you've stayed with the company for a certain amount of time. Check with your plan administrator for the vesting requirements for your particular 401(k) plan.

Ideally, you want to contribute at least enough to capture the full employer match. But, if you can't get the full employer match, start where you can and as your income grows, you can more readily increase your retirement plan contributions over time.

Age-based saving guidelines can be a helpful resource to guide your retirement savings goals. However, the closer you get to retirement, the more you will want to have a personalized financial plan to help guide you.

If your employer doesn't offer an employer match, consider putting at least 10%-15% of your income into your retirement account as a starting point. Aim to increase this contribution amount over time to continually build your retirement savings.

Saving for retirement is one, if not the most important, goal for many investors. Aim to save at least 10-15% of your pay towards your retirement. You can use the 401(k) match to help you reach the 10-15% (if not more) target amount. Maximize this valuable benefit and try not to leave money on the table. Taking full advantage of the employer match is a smart move that can make a big difference in the long run.