Does the 401(k) Limit Include Employer Match? – Avoid This Mistake + FAQs

No – employer matches do not count toward the $23,000 employee deferral limit. Many people are confused about whether employer matching contributions count toward their personal 401(k) contribution limit.

You’re not alone – the IRS sets strict limits for what you can defer from your salary, but employer matches follow different rules.

What you’ll learn:

• The exact 401(k) contribution limits for 2024 and how employer matches fit into the rules.
• How different 401(k) types (traditional, Roth, solo, SIMPLE) have varying contribution rules.
• The tax implications of employer matching and strategies to maximize your retirement savings.

401(k) Contribution Limits: How Much Can You Contribute?

• Employee 401(k) limit (2024): The IRS raised the annual elective deferral limit to $23,000 for 2024. This is the maximum you, as an employee, can contribute to your 401(k) through salary deferrals, not including any employer contributions.
• Catch-up for age 50+: If you are 50 or older, you can contribute an extra $7,500 as a catch-up contribution. That means older workers can put in up to $30,500 of their own money in 2024. These catch-up contributions are on top of the standard limit and are intended to help those nearer retirement boost their savings.
• Employer contributions: Employer contributions do NOT count toward your personal $23,000 limit. In other words, your company’s matching or profit-sharing deposits are separate and do not reduce the amount you can defer from your salary. You are allowed to contribute the full amount regardless of any match.
• Total contribution limit: There is, however, an overall cap on total contributions (employee + employer). For 2024, the combined 401(k) contribution limit is $69,000 (or $76,500 for those 50+ including catch-ups). This cap includes your contributions, any employer match or profit-sharing, and any other additions to the account for the year. Essentially, while your own contributions are capped at $23,000, an employer can contribute up to the difference to reach the $69,000 total annual limit (subject to other plan rules).

Does Employer Matching Count Toward the Limit?

• No – employer matches do not count toward the $23,000 employee deferral limit. Your 401(k) contribution limit (sometimes called the elective deferral limit) applies only to what you put in from your paycheck.
• Yes – matches do count toward the overall $69,000 annual cap. While you can always contribute your full $23,000 regardless of any match, the company’s contributions are counted when assessing the total contributions to your account. In practice, hitting the $69,000 combined limit would require a very generous match or additional employer profit-sharing.
• Generous matches can hit the total cap: If your employer offers a large match (for example, dollar-for-dollar on a high percentage of your salary), it’s possible to reach the $69,000 combined limit faster than you might expect. This generally affects high earners or those in plans with profit-sharing contributions.
• Why this matters: Understanding these rules ensures you don’t mistakenly think you’ve hit your limit when you haven’t. It also helps you avoid missing out on free money – you want to contribute at least enough to get the full employer match without worrying that their match will push you over the limit. Conversely, if you have both high personal contributions and a high employer contribution, you need to be aware of the total cap to avoid excess contributions.

Employer Matching: How It Works

• How companies match: Employers often match a percentage of an employee’s contributions, usually up to a certain portion of your salary. Common match structures include, for example, 100% of the first 3% of pay or 50% of the first 6% of pay that you contribute. One common scenario is a dollar-for-dollar match up to 6% of the employee’s salary. This means if you contribute at least 6% of your pay, your employer contributes an additional 6% on your behalf. Other companies might do a half-match (e.g., 50 cents per dollar) on a higher percentage – the goal is to encourage you to save by giving an incentive.
• Tax benefits for employers: Employer contributions are tax-deductible for the company as a business expense. This makes offering a match beneficial for employers as well; they get a tax break while helping employees save.
• Tax treatment for employees: You don’t pay taxes immediately on employer matching contributions. Employer matches are made with pre-tax dollars, and you won’t owe income tax on those funds until you withdraw them in retirement. Even if you have a Roth 401(k), the match that your employer contributes is not taxed to you now – it goes into your account tax-deferred. (Keep in mind that 401(k) withdrawals in retirement from pre-tax contributions, including employer matches, will be taxed as income.)
• Vesting schedules: It’s worth noting that some plans have vesting schedules for employer contributions. “Vesting” means you may need to stay with the company for a certain period before the matching contributions (and their investment earnings) fully belong to you. Check your plan’s vesting rules – leaving the job too early could forfeit some of the match money. This doesn’t affect contribution limits, but it does affect how much of the employer’s contributions you actually keep if you change jobs.

Roth 401(k) vs. Traditional 401(k): What Changes?

• Contribution type (pre-tax vs post-tax): In a traditional 401(k), your contributions are made pre-tax – they reduce your taxable income now, and you’ll pay taxes on withdrawals in retirement. In a Roth 401(k), the opposite happens: contributions are made with after-tax dollars (no immediate tax deduction), but qualified withdrawals in retirement are tax-free. This difference affects when you get the tax benefit, but critically, it does not change the contribution limits. The same $23,000 (2024) limit applies to your combined traditional and Roth 401(k) contributions – you can split between them, but the total cannot exceed the annual employee maximum.
• Employer match in a Roth 401(k): If you contribute to a Roth 401(k), your employer’s matching contributions must go into a pre-tax account – essentially a traditional 401(k) portion of the plan. By law, employer matches are made with pre-tax dollars even if your contributions are Roth. This means the company match is tax-deferred and will be taxed upon withdrawal in retirement (just like a traditional 401(k) account). Practically, you’ll see two balances in a Roth 401(k) plan: your after-tax (Roth) contributions and the employer’s pre-tax contributions, kept separate. The employer’s match does not go into your Roth sub-account.
• Tax implications: With a Roth 401(k), since you’ve already paid taxes on your contributions, you won’t owe tax on those dollars (or their earnings, if rules are met) in retirement. The employer match portion, sitting in the traditional side, will be taxable on withdrawal. With a traditional 401(k), both your contributions and the match are pre-tax, so the entire balance is taxable at withdrawal. Importantly, the presence of a Roth option does not change how much you or your employer can contribute – it only affects how those contributions are taxed now and in the future.
• Same total limits apply: Whether you contribute to a Roth 401(k), a traditional 401(k), or both, your combined contributions cannot exceed the annual deferral limit ($23,000 in 2024, plus $7,500 if eligible for catch-up). Employer contributions, as noted, don’t affect your individual limit, and they go into the pre-tax bucket. Just remember that choosing Roth vs traditional is about taxation timing, not about being able to contribute more or less – the IRS limits are the same.

Maximizing Your Employer Match

• Contribute enough to get the full match – it’s free money: One of the biggest mistakes is not taking full advantage of an employer match. A 401(k) match is often referred to as “free money” for your retirement, because it’s essentially an extra 3%, 5%, or 6% (depending on your plan) of salary that your employer will give you, but only if you contribute enough to receive it. Always contribute at least up to the level that earns the maximum match from your employer. If, for example, your company matches 50% of the first 6% you contribute, try to contribute at least 6% of your pay to capture the entire match (which would be an extra 3% of pay from the employer). Not doing so is like leaving part of your compensation on the table.
• “True-up” matches: Check whether your employer offers a true-up match at year’s end. A true-up is an additional contribution some employers make if you didn’t receive the full match throughout the year due to how your contributions were timed. For instance, if you front-loaded your 401(k) contributions early in the year and then hit the limit, some per-pay-period matching formulas might leave a gap. A true-up ensures you still get the full entitled match by year-end. Not all companies do this, so knowing your plan’s policy can help you plan your contribution timing. If your plan does not true-up, it’s often wise to spread out your contributions over the full year to maximize the match each pay period.
• Avoid over-contributing early: Similarly, be mindful of contributing too fast and hitting your personal limit before year-end if your employer matches each paycheck. If there’s no true-up and you stop contributions mid-year (because you hit the $23,000 cap), you could miss out on months of matching. Strategize your per-paycheck contribution rate so that you get some match on as many pay periods as possible, while still reaching your annual goal.
• Adjust contributions as needed: If you get a raise or bonus, consider increasing your 401(k) contribution percentage, especially if your employer’s match is a percentage of your pay. This ensures you continue to capture the maximum match available. Just be careful not to exceed the IRS limits. Remember, employer matches don’t count against your $23,000, so there’s no harm in maxing out your own contributions if you can afford to – you’ll get the match on top of that. If you’re 50 or older, taking advantage of catch-up contributions can further boost your savings (and doesn’t affect matching eligibility, as matches are typically based on a percentage of your salary or contribution, up to plan limits).
• Review vesting and rules: Finally, make sure you’re aware of any vesting schedule (as mentioned earlier) and any requirements to receive the match. Some plans require you to contribute a certain percentage to get the match, and some may have a waiting period (for example, you only become eligible for matching after one year of service). Know the rules so you don’t miss out due to a technicality.

401(k) Limits for Different Plans

Not all 401(k) plans are identical. There are variations like Solo 401(k)s and SIMPLE 401(k)s that have their own contribution rules and limits. Here’s a quick overview of limits for different types of 401(k)-related plans in 2024:

Note: The above totals do not include rollovers. If you roll over money from a previous plan or IRA, that doesn’t count toward annual contribution limits.

Common Mistakes to Avoid

• Assuming employer matches count toward your personal limit: Many people mistakenly believe that if their employer puts in, say, $5,000 in matching, that counts against the $23,000 they’re allowed. It does not. Your $23,000 (or $30,500 with catch-up) is just your own contributions. Don’t hold back your contributions out of fear of “going over” due to the match.
• Contributing too little and missing out on free money: Failing to contribute at least enough to get the full employer match is like leaving part of your salary behind. For example, if your employer matches 100% up to 5% and you only contribute 3%, you’re missing an extra 2% of your pay that could be in your 401(k). Over years, this adds up to thousands of dollars of lost retirement savings. Always try to capture the full match if you can afford to – it’s essentially a guaranteed return on that portion of your contribution.
• Not monitoring the total contribution limit: While most people won’t hit the $69,000 combined limit, if you have a high income and a profit-sharing plan or you switch jobs mid-year (with two different 401(k) plans), it’s possible to accidentally contribute too much in total. Be especially careful if you participate in more than one 401(k) in the same year – the $23,000 limit is per person, not per plan. Exceeding the IRS limits can result in tax penalties if not corrected.
• Forgetting that employer matches are pre-tax (even in a Roth 401k): If you have a Roth 401(k), remember that the employer’s contributions will always be in a pre-tax account. This means you’ll owe tax on those matched funds when you withdraw them, even though your contributions come out tax-free. It’s not exactly a “mistake,” but it’s a misunderstanding that could lead to confusion when you retire and see part of your account is taxable. Plan for the fact that employer money will be taxed later. Recent law changes now allow employers to offer Roth matching in some cases, but this is still relatively rare and you’d have to elect to have it – by default, matches are pre-tax.
• Over-contributing without correcting: If you do accidentally contribute over the limit (it can happen if you’re not tracking contributions especially across job changes), make sure to inform your plan administrator and withdraw the excess by the deadline (usually April 15 of the next year) to avoid penalties. Leaving an excess contribution in the plan can lead to double taxation or plan disqualification issues.

FAQs

Q: Does my employer’s match count toward my contribution limit?
A: No. Employer matching contributions do not count toward your individual 401(k) contribution limit (the $23,000 deferral limit). You can contribute the maximum allowed for yourself, and any employer match is on top of that. However, the match does count toward the overall combined limit of $69,000 (for 2024). In short, the personal limit is separate from the combined limit.

Q: Can I contribute the full $23,000 and still get my employer’s full match?
A: Yes. Your employer’s match does not reduce the amount you can personally contribute. You are allowed to contribute up to the IRS limit ($23,000, or $30,500 if age 50+) regardless of any employer contributions. In fact, if you can afford to do so, contributing the maximum and getting the full match is a great way to boost your savings. For example, even if your employer contributes, say, $5,000, you can still put in your entire $23,000. Just watch the total cap – extremely large matches might bump against the $69,000 total annual limit, but this is uncommon for most people.

Q: What happens if my contributions exceed the limit?
A: Excess contributions must be corrected to avoid penalties. If you accidentally contribute more than the allowed amount in a year (e.g., you put in $25,000 when the limit is $23,000), the excess is considered an “excess deferral.” The IRS requires that excess deferrals plus any earnings on them be withdrawn by April 15 of the following year. This corrective distribution will be taxed in the year the contribution was made (and the earnings taxed when withdrawn). If you do not withdraw the excess by the deadline, the excess amount could end up being taxed twice and could even jeopardize the tax-qualified status of the plan. In summary, inform your plan administrator as soon as an excess is discovered.

Key Terms to Know

• Elective Deferral Limit: The maximum dollar amount an employee can contribute from their salary to a 401(k) plan in a year. For 2024, this is $23,000 (or $30,500 if age 50+). It’s called “elective deferral” because it’s the portion you elect to defer from your paycheck.
• Total Contribution Limit (Section 415 limit): The overall cap on contributions to your 401(k) from all sources (your contributions, employer match, employer profit-sharing, etc.). In 2024 this total limit is $69,000 (or $76,500 for 50+). This ensures very high earners or those with large employer contributions don’t get more than a certain amount in one year.
• Catch-Up Contribution: An extra amount allowed for participants aged 50 and above, letting them contribute beyond the normal limit. In a 401(k), the catch-up is $7,500 in 2024. It’s designed to help those closer to retirement “catch up” on saving. Catch-up contributions don’t count against the standard deferral limit (they’re in addition) but are still subject to the combined total cap when added in.

Evidence: Why Employer Matches Matter

• Most companies offer a match: The majority of employers that sponsor 401(k) plans offer some form of matching contribution. More than three-quarters of companies include an employer match as part of their 401(k) plan. It’s a common benefit because it encourages participation and helps attract and retain employees. This means odds are your plan has a match – and you should take advantage of it.
• Boost to your savings rate: An employer match can significantly accelerate your retirement savings. It’s essentially an automatic additional contribution. For example, if you contribute 5% of your salary and your employer matches another 5%, you’re effectively saving 10% of your salary each year, but only half of that comes out of your pocket. Employees who consistently get the full match grow their 401(k) balances much faster; missing out on the match could leave thousands on the table over 20 years.
• “Free money” adds up: Failing to get your full match is literally losing money that could have been yours. A report found that one in four employees do not capture the full company 401(k) match, and the typical worker who doesn’t gets significantly less in contributions per year. That might not sound huge, but over decades it can compound into tens of thousands of dollars of lost savings. It’s essentially part of your compensation – by not contributing enough to get it, you’re leaving part of your paycheck unused. Always remember: the employer match is part of your overall benefits package and an important component of your retirement security.