How to make the most of your employer 401(k) match

10 MIN READEditorial Policy

One of the top ways to make the most of your 401(k) plan is to take full advantage of your employer match. That’s when an employer contributes an amount to your retirement savings plan in addition to what you contribute. The rules for matches vary by company and often depend on the amount you contribute.

Let’s break down how employer matching works, the key rules to review, and how to maximize contributions to your workplace retirement plan.

Do employers really match contributions to 401(k)s?

Yes. And it has been the norm for several years now. In the 18th edition of its How America Saves report, Vanguard analyzed 1,900 defined contribution retirement plans (mostly 401(k) plans) representing a total of 5 million participants and found that 95% of plans provide employer contributions, up from 91% in 2013.

Many employers recognize the power of a 401(k) as a strong tool for attracting and retaining talent. 31% of employees value an employer-sponsored 401(k) over a salary raise, according to a Glassdoor poll. In addition, a 401(k) match contribution is tax-deductible for employers. Every dollar a company contributes to employees’ 401(k) plans is tax-deductible, providing ongoing tax benefits to companies.

What can I do if my employer doesn’t offer matching contributions?

Ask your plan’s sponsor why they’re not offering one. In 2018, 95% of Vanguard plans provide employer contributions, so your request is nothing out of the ordinary. You can also read our Employee’s Guide to Asking Your Manager or Boss for a 401(k) for Your Company. If you want to encourage them to offer a retirement savings plan, reading this article may give you a strong foundation to demand a re-evaluation of a matching contribution policy. After all, the better the workplace retirement plan, the more useful it is as a recruiting tool.

What’s a typical employer match to a 401(k)?

Ever wondered how employers calculate matched contributions? In 2018, Vanguard administered more than 150 distinct match formulas (down from more than 200 back in 2016!). With 71% of plans using it, the most popular formula is the single-tier formula, such as $0.50 per dollar on up to 6% of pay. Under this single-tier formula, an employee making $60,000 per year could get up to $1,800 in employer-matched contributions.

Here are the most common employer matching formulas per the Vanguard survey:

Match TypeExample FormulaPercentage of Plans Using This Type
Single-tier formula$0.50 per dollar on the first 6% of pay71%
Multi-tier formula$1.00 per dollar on the first 3% of pay; $0.50 per dollar on the next 2% of pay21%
Dollar capSingle- or multi-tier formula with a $2,000 maximum6%
OtherVariable formula, based on age, tenure or similar vehicles2%

There are literally hundreds of matching formulas out there, so contact your 401(k) plan administrator regarding the rules and specifics of the matching formula used by your employer.

  • The most common matching formula among Vanguard plan holders (a sample representing 5 million people!) was $0.50 per dollar on the first 6% of pay.

  • The second most popular formula for employer matching contributions is $1.00 per dollar on the first 3% of pay and $0.50 on the next 2% of pay. Under this multi-tier formula, the same worker in our previous example would receive up to $2,400 in matching contributions.

Is there a maximum or limit that my employer can contribute?

You may be familiar with the annual contribution limit for a 401(k) ($23,000 in 2024). This total reflects what you personally can contribute to your 401(k). Your employer can contribute any amount above and beyond as long as your total 401(k) contributions do not exceed $69,000 in 2024 (or 100% of your salary, whichever is less).

How do I maximize my employer match?

If you’re not maximizing your employer match, you’re in the minority. In 2021, nearly two-thirds of Vanguard plan participants received the full employer-matching contribution.

While you can contribute up to the maximum amount specified by the IRS, you can contribute less. To make the most out of your workplace retirement plan, set the minimum contribution to your plan to reach your employer’s maximum matching contribution.

Let’s calculate what a match might look like assuming you have an annual salary of $50,000:

Employer Match TypeExampleYour Annual ContributionYour Employer's Annual ContributionTotal Annual Contribution
Single-tier formula$0.50 per dollar on the first 6% of pay$3,000$1,500$4,500
Multi-tier formula$1.00 per dollar on the first 3% of pay; $0.50 per dollar on the next 2% of pay$2,500$2,000$4,500

By setting your annual contribution to the ceiling of your employer’s matching contribution, as shown in our examples, your annual contribution becomes 50% to 80% larger than if you had only your individual contribution.

In 2018, the average employee contribution to maximize employer match was 7.4% of their annual pay, according to Vanguard data. Your plan rules will dictate the actual contribution percentage to maximize your employer match so contact your plan administrator for more details.

Do employers match contributions right away?

Most start right away. However, some employers require you to work a minimum period of time before starting to match your contribution. In 2020, 20% of Vanguard plans required one year of service for matching contributions.

Does vesting affect matched contributions from an employer?

While employer matching contributions to retirement plans are indeed a great recruiting tool, some employers may require employees to stick around for a while for those contributions to become truly 100% theirs. This process is known as vesting.

The two most common types of vesting are cliff vesting and graded vesting.

  • Cliff vesting requires you to wait a minimum number of years for matching contributions to become truly yours (e.g. wait five years to gain 100% of ownership).

  • Graded vesting gradually grants you ownership over the matched contributions over a period of time (e.g. gain 20% of ownership every year until you get 100% ownership on year five). If you were to part ways with your employer, you can only take employer contributions that have fully vested. Employer contributions that haven’t vested go back to the employer.

Vanguard data reveals that small businesses are the most likely to require longer vesting periods for employer matching contributions. The good news is that four in 10 participants were in plans with immediate vesting of employer matching contributions, according to Vanguard.

Regardless of the size of your employer, make sure to check the vesting schedule for matching contributions. If you don’t, you could be leaving free money on the table. By knowing your vesting schedule, you’ll be able to better time your departure from your company and keep the most out of your hard-earned matching contributions.

If you feel that your employer could get a hand improving your current workplace retirement plan or want to set up or switch to a 401(k) that’s great for employees and employers, let your company know about Human Interest. We’re a 401(k) administrator with expertise in providing flexible plan design and options, including eligibility, matching contributions, vesting, and profit-sharing.

Damian Davila is a Honolulu-based writer with an MBA from the University of Hawaii. He enjoys helping people save money and writes about retirement, taxes, debt, and more.

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