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Math of Money

The 401(k) Match: Free Money You Might Be Leaving on the Table

How 401(k) employer matching works, common match formulas, vesting schedules, and how much skipping part of your match can cost you by retirement.

By S M Ariful Islam ShawonUpdated 4 min read

Frequently asked questions

Does the employer match count toward my 401(k) contribution limit?

No. The employee elective deferral limit applies only to what you contribute from your paycheck. Employer contributions count toward a separate, much higher overall limit on total contributions to your account.

What happens to my match if I leave my job?

Your own contributions are always yours. Employer contributions are yours once they vest. Anything that isn't vested when you leave is usually forfeited. Check your plan's Summary Plan Description for its vesting schedule.

Is the employer match taxed?

Traditionally, matching contributions go in pre-tax and are taxed as ordinary income when withdrawn. Since SECURE 2.0, plans may let you choose to receive matching contributions as Roth, in which case they're included in your taxable income for the year they're made.

Should I contribute more than the match?

Getting the full match is the first priority. After that, many people pay off high-interest debt, build an emergency fund, and then decide between more 401(k) contributions and an IRA based on fees, investment options, and Roth vs. traditional tax treatment.

What is a 401(k) true-up?

If your employer matches each paycheck and you reach the annual contribution limit early, you can miss match on the paychecks after that. A true-up is a year-end contribution some plans make to restore the full annual match. If your plan doesn't do true-ups, spread your contributions across the whole year.

Calculators used in this guide

Sources

Disclaimer: This guide is general education, not financial, tax, or legal advice. Examples use round, hypothetical numbers; your results depend on your own loan terms, taxes, and circumstances. See oureditorial policy for how guides are written and corrected.

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