A 401(k) plan is the most popular type of retirement plan because it provides a convenient way for employees to save for retirement and flexible contribution options for employers who want to help boost their employees’ retirement accounts.

The most common type of employer contribution is the matching contribution.

A matching contribution is made only for employees who are saving in the 401(k) plan. If an employee is deferring a portion of their paycheck into the plan, the employer matches a portion of the employee’s contribution. If an employee does not contribute a portion of their paycheck into the plan, that employee will not receive an employer matching contribution.

Everything you need to know about 401(k) fees and cost.

Benefits of 401(k) matching

Sometimes called free money, employer 401(k) matching contributions are a big win for employees.

All an employee has to do is save a portion of their pay in the 401(k) plan, and their employer will add money to the employee’s 401(k) account. Most retirement planning experts suggest that employees contribute at least enough to qualify for the full employer match. For example, if an employer is matching 100% (dollar for dollar) up to 4% of compensation, an employee would want to defer at least 4% to receive the maximum employer match, so they do not miss out on this free money.

Another benefit of matching contributions is that employees do not have to pay taxes on the matching contribution (and any earnings) until the employee withdraws the money from their 401(k) account.

Matching contributions are also beneficial for the employer. Helping employees retire at a reasonable age with financial security is not only good for employees, but it is also good for employers. Matching contributions can motivate employees to more actively save in the 401(k) plan, setting them on the path to a more financially secure future. The employer also gets a tax deduction for the matching contributions.

Employers also have flexibility in deciding:

  • Whether to make a matching contribution each year
  • Which employee contributions they will match
  • What the matching contribution formula will be
  • What the eligibility and allocation conditions will be for the matching contributions

Typical 401(k) match

There is a lot of variation among employers regarding the amount of matching contributions they make to their 401(k) plan. No set amount is required unless the plan is a Safe Harbor 401(k) plan. Here are some commonly used matching contribution formulas.

  • Matching 50% of an employee’s contributions up to 6% of the employee’s salary (net 3%)
  • Matching 100% of an employee’s contributions up to 4% of the employee’s salary (net 4%)
  • Matching 100% of an employee’s contributions up to 4% of salary and matching 50% on the next 2% of salary (net 5%)
  • Matching 50% of an employee’s contributions up to the first $2,000 of an employee’s contributions (net $1,000)

Start here to find out what types of matching contribution formulas you can set up in a 401(k) plan with Ubiquity Retirement + Savings.

401(k) matching contribution rules

Employers have a great deal of flexibility in setting up a matching contribution to reward their employees who are saving in the 401(k) plan, but also must meet certain requirements.

Maximum employee elective contribution (age 49 and younger)


Maximum employee elective contribution (age 50 and older)

Additional $7,500

Maximum employee elective deferral plus catch-up contribution (age 50 or older)


Defined contribution maximum limit, employee + employer (age 49 or younger)


Defined contribution maximum limit (age 50 or older), all sources + catch-up


Highly compensated employees’ threshold for nondiscrimination testing


Key employee officer compensation threshold


Annual compensation limit for HCEs and key employees