How Much Can I Contribute to My 401(k) With Employer Matching?

Dylan Telerski / 19 Jun 2020 / 401(k) Resources

In 2022, the total annual contribution maximum, including 401(k) employer matching, is $61,000–or up to 100% of the employee’s salary if they make less than that. Individuals may contribute up to a maximum of $20,500 to their 401(k)s or $27,000 if they’re 50+ years old. Employer contributions are added ON TOP of this limit to a maximum of $61,000.

How Much Should I Contribute to My 401(k) With Employer Matching?

Of course, how much you can contribute to a 401(k) and how much you should contribute can be two different calculations. First, you’ll want to find out what your employer match is to be sure you’re maximizing your savings. Then you may need to crunch a few more numbers to determine how much you should put into your retirement account without overburdening yourself now.

What Is Your Employer Match?

The exact match amount varies from employer to employer, so you will need to ask human resources or your boss about the plan details to be sure your contributions meet the level of the maximum employer match.

Generally speaking, the average matching contribution is 4.3% of an employee’s pay. Nearly three-quarters of employers prefer to match 50 cents on the dollar, up to 6% of employee pay. About one-quarter of employers elect to match dollar-to-dollar, up to a maximum of 3% employee pay.

You want to be sure you’re contributing at least enough to earn all of the matching dollars your employer offers. After all, this is FREE money.

When Should You Max Out Your 401(k)?

Personal financial experts recommend saving at least 15% of your annual income for retirement. If you’re making at least $135,000 in 2022, 15% will bring you to the maximum $20,500 contribution for high earners. If you can afford to save the maximum, you should take advantage of employer matching, tax savings, and compounding interest to build a robust retirement portfolio this way.

When Shouldn’t You Max Out Your 401(k)?

On the other hand, if you’re earning $50,000 a year, you probably can’t afford to set aside 39% of your total income. Certain financial priorities should come before maxing out a 401(k), such as:

• Saving three to six months of basic living expenses in an emergency fund
• Eliminating high-interest credit card debts and personal loans
• Being able to save for short-term goals like having a child, buying a home, or buying a car
• Covering yourself with adequate life insurance
• Contributing the maximum to your Health Savings Account

Is Your Plan Working For You?

If your work retirement plan is burdened by high fees and lackluster investment lineup, it may not be worth hitting the maximum contribution. Read over a copy of your summary plan description and annual report before considering your next move. Other tax-advantaged retirement options like Traditional or Roth IRAs may let you contribute up to $6,000 or $7,000 a year with more control over your investment options.

If you’re an employer looking out for your workers, you can always contact Ubiquity to discuss starting a new plan or switching plan providers to take advantage of our administrative services without paying AUM fees, per-participant fees, or other unnecessary costs.