Does Employer Match Count Towards 401k Limit?

What is a 401k?

A 401k is a retirement plan set up by an employer for their employees. It is a type of defined contribution plan that allows employees to contribute pre-tax money from their paycheck and receive matching contributions from their employer. The money saved in the 401k plan is typically invested in stocks, bonds, or mutual funds.

What is an Employer Match?

An employer match is a contribution made by an employer to an employee’s 401k plan. The employer match is usually a percentage of the employee’s contribution, up to a certain limit. For example, an employer might match 50% of an employee’s contribution up to 6% of their salary.

Does the Employer Match Count Towards the 401k Limit?

Yes, the employer match does count towards the 401k limit. The 401k limit is the maximum amount of money that can be contributed to a 401k in a given year. This limit is set by the Internal Revenue Service (IRS) and is currently $19,500 for 2021. The employer match does count towards the 401k limit, so if the employer match is $1,000, then the total amount that can be contributed to the 401k is $18,500.

What are the Benefits of an Employer Match?

There are several benefits to taking advantage of an employer match. First, it is essentially free money. The employer match is a contribution made by the employer and does not come out of the employee’s pay. Second, the employer match can help employees reach the 401k limit faster, thus maximizing their retirement savings. Third, the employer match helps to reduce the employee’s taxable income since the contributions are pre-tax.

What Happens if I Don't Take Advantage of the Employer Match?

If an employee does not take advantage of the employer match, then they will miss out on the free money from their employer. Additionally, the employee will not be able to maximize their retirement savings and will miss out on the tax advantages of the 401k plan. Therefore, it is in the employee’s best interest to take advantage of the employer match.

Conclusion

Employer matches do count towards the 401k limit. Therefore, it is in the employee’s best interest to take advantage of the employer match in order to maximize their retirement savings and take advantage of the tax benefits of the 401k plan.

References

Internal Revenue Service. (2021, February 22). Contribution Limits. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/contribution-limits.