Every 401k Matching Example You Should Be Aware Of

Saving more money on top of your current 401(k) employee contributions sounds great, right? This is possible thanks to matching contributions.

An employer’s matching contributions allow you to get a higher percentage of money into your 401(k) every year. Even though there are certain limits to making a matching contribution, this is an excellent way to enjoy that “free money.”

Employer matching contributions may be hard to understand if you’re new to your 401(k). There are a few variables to consider. Also, not all employees follow the same formula to contribute to your retirement plan.

I’ll show you everything you must know about an employer match for a 401(k). If you want to know the true 401(k) match meaning, keep reading!

What Are Matching Contributions in a 401(k)?

You can say you got a matching contribution when your employer contributes money to your retirement account. It’s called “matching” because the amount of money the employer gives you is based on how much you’re contributing every year.

An employer’s contributions are more common to see in mid and large-size companies. However, there may be a few small businesses that are also willing to match your own contributions.

In any case, you should take advantage of matching contributions. These are considered amounts of “free money” that can help you when you retire later.

I’ve made a list of the best company match 401k plans, you should have a look if you are searching for employment.

How Does 401(k) Matching Work? | Types of Employer Contributions

Types of Employer Contributions

Your employer will usually consider their employee’s contribution rate before matching. There are two variables to consider in a matching program: the amount you contribute and the amount the employer contributes.

Here are two types of employer contributions you can expect based on these variables:

Dollar-for-Dollar Match

Also called a full match, it means the employer will contribute the same percentage you do. If you put 3% of your annual salary into your 401(k), your employer also puts 3%.

There are a few contribution limits in this method. You can’t expect your employer to match any percentage of money.

Partial Match

Most employers match contributions with this method. It’s because it saves them more money.

Employers usually contribute up to 50% of their employee’s contributions. Even though it’s more convenient than the dollar-for-dollar match, it means you would have to contribute more times to get better benefits once you retire.

About Non-Matching 401(k) Contributions

Even though these aren’t necessarily related to matching, they’re still worth mentioning.

These contributions are made by employers regardless if you put money in your 401(k) or not. Your employer may set a dollar amount based on the company’s revenue growth/annual profit or your time working for it.

What Is a Good 401(k) Match?

You can expect the typical 401(k) match to be about 3%-4% of an employee’s annual salary. Most companies don’t offer more than 6%.

A “good” match would be anything between 4%-6% of your salary. If you were to get anything over 6%, that would be considered a great match.

The best way to know if you’re getting decent employer matches is to talk to a financial advisor. These people can help you come up with the best strategy to maximize your 401 (k) employer match benefits.

How Much Should You Contribute?

Most strategies involve contributing enough money so that you max out your employer contributions. However, there are hundreds of different formulas and strategies you can follow to come up with the best solution.

Another important thing to remember is that employers can set their contribution guidelines. These guidelines must meet ERISA requirements. You should talk to an expert to come up with an appropriate contribution formula that matches your goals.

When Should You Contribute?

Evaluate how often your employer is planning on contributing to come up with the best schedule. Some employers make contributions periodically, whereas others offer a lump-sum payment once the year ends.

As with the previous section, I suggest you talk to a financial expert to come up with the best strategy.

What Are the Limits for Matching Contributions?

The IRS sets annual contribution limits. In other words, both you and your employer are limited to how much you can contribute to the 401(k).

An employee has an annual deferral cap of $22,500. If they’re over 50, this cap increases to $30,000 since they’re allowed to contribute $7,500 more.

When talking about matching contributions, however, we get a different limit. As for 2023, you can receive up to $66,000 or 100% of your annual salary, whichever is lower.

The amount you receive includes your after-tax contributions, your deferral contributions, and any other contributions made by your employer. Keep in mind that employer contributions don’t count toward your annual deferral cap of $22.5k.

Common Formulas and Examples of Employer Contributions

As mentioned, there are hundreds of formulas you can get. You can contact your plan administrator if you want more information on which formula is being used in the company.

There are four common employer matching formulas you can get:

Multi-tier Formula

Here, it would be $1.00 per dollar on your first 3% of pay. Then, you’d get $0.50 per dollar on your following 2% of pay.

Single-tier Formula

The formula states “$0.50 per dollar on the first 6% of the salary.” This is the most common formula used in 401(k) plans.

Dollar Cap

You can get either a single or multi-tier formula. The main difference here is that the employer will set a dollar cap.


Here, the employer would set a formula based on your age, your time at the company, and other related matters. Since this can be confusing for most, it’s the least used formula.

Dollar Cap

How Can You Get More Benefits?

The best thing you can do is set your annual contributions to your employer’s cap. If you do this correctly, your total annual contributions could be up to 80% larger.

Let’s say you’re working with a single-tier formula and have an annual salary of $50k. Your employer’s annual contribution would be $1,500, and yours would be $3,000. This would give you a total contribution of $4,500.

Boeing’s Example of 401(k) Matching

Did you know that Boeing matches contributions for non-union employees? Specifically, the company matches contributions dollar-for-dollar, up to 10% of eligible pay.

Another great benefit of working at Boeing is that every employee is 100% vested in the company’s contributions. This means that you have more freedom with your retirement savings than with other companies.

Interestingly enough, I wasn’t as impressed with Google’s 401k match program.

What Are Two Examples of Employer Contributions? | Other Contribution Plans You Can Get

The 401(k) is the most common “employer contribution plan” you can expect. As mentioned, you’re responsible for getting money into the account, but some employers can decide to match your contributions.

However, there are other types of employer contribution plans you can get. Here are two examples:

Roth 401(k)

The Roth 401(k) is essentially the same as a traditional 401(k). You have to follow the same annual contribution limits.

What’s the difference here? You’ll have to pay taxes on your contributions. In return, you can withdraw tax-free money when you retire.

Two conditions must be met:

  • You must be at least 59 and a half years old.
  • The money in your account must have been there for a minimum of five years.

Your employer can match your Roth 401(k) contributions. However, they must place these additional contributions into a separate, regular 401(k). You’ll get the same limits, so even if you have two retirement accounts, the combined contributions can’t be higher than the annual limit imposed by the IRS.


The “Savings Incentive Match Plan for Employees of Small Employers” is an IRA that allows you to make tax-deductible contributions. Your employers can either make non-elective contributions or match your contributions up to 3% of your salary.

In 2023, the maximum you can contribute to a SIMPLE plan is $15,500. If you’re over 50, you can contribute $3,500 more.

Remember to ask your plan administrator or financial advisor to see which options you have available based on what the employer is offering.

What’s 401(k) Vesting?

An essential thing you must evaluate with your retirement plan is your “vesting schedule.” Your “vesting” determines how much you actually owe from your employer’s contributions. This schedule is typically set according to the number of years you have worked at the company.

If you’ve worked for a company for five years, for example, you’re more likely to keep 100% of the contributions made to your retirement savings account.

You will forfeit a portion of your contributions if you leave the company early or if you get terminated. It depends on your employer’s conditions.

This only applies to employer matches. All your contributions are 100% vested.

Most of the time, your “percentage of ownership” will increase with your tenure. The more years you have worked at the company, the better. Employers usually set the vesting schedule at five years.

This isn’t the only type of vesting schedule you can get, though. There are two more:

  • Vesting Cliff: You’ll have 0% ownership of the employer matches until your tenure reaches a specific goal. If your employer sets the vesting cliff to the fourth year, for example, it means that you won’t get 100% ownership of the matching contributions until you have four years working at the company.
  • No Schedule: You will have complete ownership of employer matches immediately.

Most employees prefer having no vesting schedule since it means they can leave the company without the risk of losing money. Unfortunately, not all employers work with immediate vesting because that could represent a potential loss for them if you leave early.

Do You Have to Pay Income Taxes on Matching Contributions?

You don’t have to pay any taxes on contributions made by your employer. They grow tax-deferred in your 401(k), and you would only have to pay taxes when you start making your withdrawals.

If you have a traditional 401(k), everything would get taxed as ordinary income at your set tax bracket.

What Happens If the Employer Matches Your 401(k)?

There are plenty of benefits to having an employer match your contributions. The most obvious benefit is that you’ll get more money deposited into your savings plan.

If you work at a company that offers a reasonable matching contribution plan, you should make the most of it. You could end up with much more money than if you were contributing on your own.

All of this results in a better financial future and less stress for you and your family.

Can You Get Matching Contributions If You Don’t Add Anything to Your 401(k)?

It’s not common to get non-matching contributions if you don’t put anything into your savings plan, but it’s possible.

You can expect this to happen if the company had a great year with more growth and higher profits. Some employers may decide to contribute to your 401(k) as a “thank you.”

I don’t recommend you count on this method, though. The best way to ensure you maximize your 401(k) benefits is to set a reasonable contribution strategy. Remember that the more (or better) matched contributions you get, the better.

Why Do Employers Match Contributions in the First Place?

Employer matches are one of the best benefits employees can get on a job. However, employers who offer 401(k) plans don’t have to contribute anything to them if they don’t want.

Some employers still decide to contribute, but why? It’s a great incentive!

  • Promoting Better Work and Increasing Value: A great matching contribution plan can encourage employees to work better and stay since they feel valued.
  • Recruitment: Many employers offer attractive employer-match benefits to get more people to work there.
  • Retention: Someone who gets constant employer matches is less likely to leave a company. Some employers offer this incentive to increase their overall retention rates.

Regardless of the reason, there’s no denying that 401(k) matching benefits everyone in a company. All you have to do is create a great strategy to maximize your benefits and enjoy a stress-free retirement life in the future.

Extra Tips You Can Follow for Your Employee Contributions

Employer matching contributions are an excellent way to maximize your retirement savings. However, you must take as much advantage of them as you can.

Here’s some advice on how you can maximize your matches:

Contribute Enough Money

I mentioned this before, but if your employer offers matching contributions, do your best to contribute just enough to get a “full match.” Not taking advantage of the full match you’re offered essentially means you’re missing out on free money.

You can ask your plan administrator to see if it’s viable to contribute more money than you already are.

Make Contributions As Soon As Possible

A common mistake among many people is that they wait too long to start contributing to their 401(k). Many savings plans allow you to make contributions as soon as you start working in the company. However, not all employers will match your contributions right away.

If you want to get maximum benefits, don’t wait until your employer decides to match your contributions. Get money into your retirement account as soon as you can.

Consider Automatic Contributions

You can forget about making calculations all the time and just set up automatic payroll deductions. Once you do that, all your contributions will get deposited into your retirement account without any additional action.

If you’re unsure of this method, you can calculate how much you could earn from your potential employer matches. Based on that number, you can set a reasonable amount for your contributions and let your retirement savings grow.

Don’t Withdraw Your 401(k) Before You Have to

This is one of the most common mistakes people make when saving money. Most markets are unpredictable. There may come a time when you’ll be in a tough spot, financially speaking.

In these times, you may be tempted to tap your 401(k) and get some money to save yourself from any financial problems. The issue with doing that is that you’ll have less money for your retirement, and you’ll probably have to pay more taxes too.

If you’re a young investor, you’re more likely to survive market swings and recover. As you get older and reach the minimum retirement age, you’ll be able to take out money from your account without any worries.

Bottom Line – Is a 401(k) Worth It?

Each person’s financial situation is different, so you may be wondering if the 401(k) plan is even worth it. If you’re struggling too much financially, you may not have the means to deposit money in a retirement account.

However, if your current employer is offering contribution matches, you should reconsider opening your retirement account. You don’t have to contribute a lot of money every year to make your savings grow. If you have your employer backing the account up with the matched contributions, you’ll get even more benefits in the future.

The best thing I can recommend is to analyze your current retirement portfolio and see what you can do to improve it. Talk to a financial professional, and they’ll guide you to the best options available based on your case.

To summarize, a 401(k) is worth it, especially if you get extras like matching contributions.