What Is The Maximum 401K Contribution Of Employers?

An employer is not obliged by the government or the IRS to make matching 401K contributions for their employees. However, they have the option to volunteer and do so because it provides them a few benefits such as tax breaks. For employees, having their maximum 401K contribution matched by their companies also allow them to grow their savings on a tax-deferred basis.

For this year, the maximum 401K contribution of employees is set at $16,500. In some companies, employees are allowed to contribute 15% of their pre-tax salaries to their 401K savings plan. Employers usually make a 6%-8% matching contribution as specified in the 401K plan that they provide to their employees.

In an ideal setting, the matching employer contribution can be as high as 50% of the employee’s contribution. So if you have a $1 contribution, your employer can match it with a $.50, as long as the total amount does not exceed the maximum 401K contribution limit. You may check with your employer if you wish to know the actual numbers.

Employees who receive matching 401K contributions from their employers are actually receiving free money for their savings. They are also offered various types of investments to choose from – usually ranging from stocks, bonds, and other money market options, or a combination of these.

As an employee, you should be aware that not all companies or employers can make a matching contribution to their employees’ 401K savings plan. So for those who are working with new employers, it is better to discuss this before the year ends.