Employer matching contributions are a common feature of many company 401(k) plans, with 98% of employers adding partial or full matching bonuses. The typical American company is matching 6% of employee contributions in 2022.
Employers are also increasingly recognizing the 401(k) employer match as a powerful incentive to encourage loyalty to the company; in 2022, 59% have vesting schedules ranging from one to six years before employees are entitled to walk away with the full amount of employer-matched funds.
If you own a small business or work for one, keeping tabs on what other companies are matching on their 401(k)s can help you gauge how competitive your own plan is and better adjust your contributions for the year.
Partial 401(k) Matches in 2022
In a partial match plan, the employer matches a smaller percentage of what employees contribute. A common partial match is 50 cents for every dollar of employee contribution, up to 6% of the employee’s salary. Even if employees opt to put in a greater amount – say 8% – the employer is still only responsible for putting in up to 6% in that case. So, for instance, a person earning $100,000 a year might contribute $6,000 and receive another $3,000 in partially matched funds.
Full 401(k) Matches in 2022
Full 401(k) matching means employers put in dollar-for-dollar what employees contribute, up to a set default rate or the IRS maximum. While 3% was the norm at one time, 65% of plans are now using a default rate higher than 3% in order to significantly boost savings for participants over time. In 2022, the most common default rate is now 6% of pay, according to the Plan Council Sponsor of America.
2022 Safe Harbor Matching Formulas
Safe Harbors are a popular type of 401(k) plan that allows businesses to bypass many of the annual IRS nondiscrimination testing requirements when they agree to a standard matching formula. Any employer contributions made in a Safe Harbor plan must be fully vested for all employees.
The most common Safe Harbor 401(k) matching formulas are:
- 100% match on the first 3% of employee contributions, plus 50% match on the next 3-5% (Basic match)
- 100% match on the first 4-6% of employee contributions (Enhanced match)
- At least 3% of employee pay, regardless of employee deferrals (Nonelective contribution)
401(k) Limits in 2022
Employees can put up to 100% of their compensation into a 401(k), up to the maximum limit. In 2022:
- Employees can contribute up to $20,500 (up $1,000 from 2021)
- Employees age 50 and older can add an additional $6,500 on top of this amount (unchanged since 2021)
- Employers can add $40,500 to their own 401(k), bringing the total balance up to $61,000 in 2022 (up $3,000 from 2021)
SIMPLE 401(k) Limits in 2022
Employers offering a SIMPLE 401(k) allow employees to save up to $14,500 in 2022, which is up by $1,000 from 2021. Those age 50 and older may contribute another $3,000 for a total of $17,000.
Employers can contribute dollar-for-dollar up to 3% of a worker’s pay or contribute a flat 2% of compensation regardless of the employee’s own contributions. Employer 401(k) contributions are subject to an employee compensation cap of $305,000 for 2022.
Engage Employees and Encourage Them to Save With a 401(k) Match This Year
The employer match is an excellent incentive tool to encourage employees to participate in your small business 401(k) plan. Matching not only helps employees create better financial security, but allows you and higher-paid executives the opportunity to max out your retirement savings as well.
Ubiquity is a leading provider of 401(k) plans geared specifically to small businesses. We are happy to help you set up an easy and affordable small business retirement plan with matching and educate your workforce so they understand what a great and valuable benefit you’re offering. Contact us to learn more.
FAQs
The average employer 401(k) match is at an all-time high at 4.7%. This means that, on average, companies will match 4.7% of an employee's salary toward their retirement. Employee deferrals to 401(k) plans vary greatly. But on average, employees contribute 8.8% yearly.
How much do companies usually match for 401k? ›
The average employer 401(k) match is at an all-time high at 4.7%. This means that, on average, companies will match 4.7% of an employee's salary toward their retirement. Employee deferrals to 401(k) plans vary greatly. But on average, employees contribute 8.8% yearly.
What is the 401k employer match annual limit for 2022? ›
Total 401(k) plan contributions by an employee and an employer cannot exceed $61,000 in 2022 or $66,000 in 2023. Catch-up contributions bump the 2022 maximum to $67,500 and $73,500 in 2023 for employees who are 50 or older. Total contributions cannot exceed 100% of an employee's annual compensation.
What is considered a good 401k match? ›
A study by Vanguard reported that the average employer match was 4.5% in 2020, with the median at 3% of salary. In 2023, if you're getting at least 4% to 6% in 401k employer matching, it's considered a “good” 401k match. Anything above 6% would be considered “great”.
Is 6% 401k match good? ›
Many employers match as much as 50 cents on the dollar, on up to 6% of your salary. Most advisors recommend contributing enough to get the maximum match. Turning down free money doesn't make sense unless the fund is so bad that you're losing most of it to fees and substandard returns.
What is a highly compensated employee for 2022? ›
Who Is a Highly Compensated Employee? The IRS defines a highly compensated, or “key,” employee according to the following criteria: Officers making over $215,000 for 2023 (up from $200,000 for 2022) Owners holding more than 5% of the stock or capital.
How do I calculate my 401k maximum employer match? ›
Employer maximum
If you have an annual salary of $100,000 and contribute 6%, your contribution will be $6,000 and your employer's 50% match will be $3,000 ($6,000 x 50%), for a total of $9,000.
How much should you put in 401k by age? ›
By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.
Can I negotiate higher 401k match? ›
While a company may offer a choice of a few different retirement plans, you may be able to negotiate a higher matching percentage on your 401(k) or an additional annual contribution from your company. While many firms have a company-wide policy for retirement plans, it never hurts to ask.
Is 3% a good match for 401k? ›
Full 401(k) matching means employers put in dollar-for-dollar what employees contribute, up to a set default rate or the IRS maximum. While 3% was the norm at one time, 65% of plans are now using a default rate higher than 3% in order to significantly boost savings for participants over time.
Employer matching of your 401(k) contributions means that your employer contributes a certain amount to your retirement savings plan based on the amount you contribute.
What are the most common 401K matches? ›
The average employer match is 4.7% of an employee's salary. Once employers set the rules for a match program, employees have guidelines about when and how they can access the plan. These matches form part of an employee's total compensation package, along with access to a 401(k) account program and other benefits.
Should I max out my 401K or just the match? ›
Overall, you should max out your contributions every year if you can do so while getting the maximum matching benefit from your employer.
What does 3% 401K match mean? ›
Imagine you earn $60,000 a year and contribute $1,800 annually to your 401(k)—or 3% of your income. If your employer offers a dollar-for-dollar match up to 3% of your salary, they would add an amount equal to 100% of your 401(k) contributions, raising your total annual contributions to $3,600.
What is the average cost of employee benefits 2022? ›
Total employer compensation costs for civilian workers averaged $42.48 per hour worked in December 2022, the U.S. Bureau of Labor Statistics reported today. Wages and salaries cost employers $29.32 and accounted for 69.0 percent of total costs, while benefits cost $13.17 and accounted for the remaining 31.0 percent.
What is a highly compensated employee for 2023? ›
The limitation used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased from $135,000 to $150,000.
What is the minimum salary for a highly compensated employee? ›
Under the HCE, if an employer pays an employee at least $107,432 (previously $100,000) in total annual compensation, the employee will be deemed exempt if the employee customarily and regularly satisfies the executive employee's duties test (or the duties test set forth under the administrative or professional ...
Should I contribute more than my employer match? ›
If you have a 401(k) at work and your employer offers a match, you should always invest enough in the 401(k) to claim the full match. If you don't, you're giving up free money. You can't afford to give up free money and should take advantage of the help your employer provides to ensure you save enough for retirement.
Is 20% too much for 401k? ›
As a rule of thumb, experts advise that you to save between 10% and 20% of your gross salary toward retirement. That could be in a 401(k) or in another kind of retirement account. No matter where you save it, you want to save as much for retirement as you can while still living comfortably.
What is a good 401k balance at age 65? ›
Since higher earners will get a smaller portion of their income in retirement from Social Security, they generally need more assets in relation to their income. We estimated that most people looking to retire around age 65 should aim for assets totaling between seven and 13½ times their preretirement gross income.
Q: What does a 6% 401(k) match mean? A: This means that the employer is matching up to a total of 6% of an employee's overall compensation to his or her 401(k) account on top of what the employee is contributing. So, if an employee is earning $50,000 per year, the employer's match would not exceed $3,000.
Do companies match 100% 401k? ›
Most often, employers match employee contributions up to a percentage of annual income. This limit may be imposed in one of a few different ways. Your employer may elect to match 100% of your contributions up to a percentage of your total compensation or to match a percentage of contributions up to the limit.
What does 3% 401k match mean? ›
Imagine you earn $60,000 a year and contribute $1,800 annually to your 401(k)—or 3% of your income. If your employer offers a dollar-for-dollar match up to 3% of your salary, they would add an amount equal to 100% of your 401(k) contributions, raising your total annual contributions to $3,600.
How much should I put on my 401k if my company matches 5%? ›
A common rule of thumb, though, is to set aside at least 10% of your gross earnings as a start. In any case, if your company offers a 401(k) matching contribution, you should put in at least enough to get the maximum amount. A typical match might be 3% of your salary or 50% of the first 6% of the employee contribution.
Should I max out 401k with match? ›
Overall, you should max out your contributions every year if you can do so while getting the maximum matching benefit from your employer.
How do I maximize my employer 401 K match? ›
Dollar-for-Dollar Match Up to 5%
Your company might include a dollar for every dollar you put in your 401(k) plan until you reach a total of 5% of your before-tax pay for the year. If you earn $50,000 and you add your 5% to the plan, that's $2,500 you've contributed. Then, your employer will match 100%—also $2,500.
How do I calculate my 401k employer match? ›
For example, let's assume your employer provides a 50% match on the first 6% of your annual salary that you contribute to your 401(k). If you have an annual salary of $100,000 and contribute 6%, your contribution will be $6,000 and your employer's 50% match will be $3,000 ($6,000 x 50%), for a total of $9,000.
Can I negotiate higher 401K match? ›
While a company may offer a choice of a few different retirement plans, you may be able to negotiate a higher matching percentage on your 401(k) or an additional annual contribution from your company. While many firms have a company-wide policy for retirement plans, it never hurts to ask.
What is the minimum employer match for 401K? ›
Basic match: Employer matching contributions are a 100% match on the first 3% of compensation plus a 50% match on deferrals between 3% and 5% (4% total). Enhanced match: Employer matching contributions must be at least as much as the basic match at each tier of the match formula.
Is it worth contributing more than company match to 401K? ›
While you may not get more from your employer once you exceed your matching requirement, contributing more than your match allows you to not only save more, but also take greater advantage of your tax-advantaged account and compounding interest.
Age 40: The 3X Recommendation
Both Fidelity and Ally Bank recommend having three times your annual salary put away for retirement at age 40. If you don't have a retirement savings strategy as part of your overall financial plan by this point, don't delay, one expert said.
What is the maximum percentage of 401k employer match? ›
One of the most common questions asked when it comes to 401(k) plans is what is the maximum amount an employer can contribute on a 401(k). The answer is the employer can match up to 6% of the employee's contribution. This matching amount would be repeated each year, but is subject to change.
