401K MATCHING: What Is It & How Does It Work?

You’ll frequently notice the phrase “401(k) matching” in the list of perks offered when applying for a new job. However, not all 401(k) benefits are created equal. Some companies, for instance, offer employer 401(k) matching, while others do not. Additionally, not all firms who do offer matching do it equally. What is the best option for you out of the several 401(k) plans, including Roth and standard ones, to consider? To better prepare you for your financial future and retirement planning while you’re choosing your next job path, let’s examine how Google 401k employer matching work, examine some of the best matching companies, and discuss how to calculate using a calculator.

What is an Employer 401K Matching?

A 401(k) plan is an employer-sponsored retirement account that employees can pay into. A 401(k) employer match is an additional employee benefit on top of the investment account itself because many firms match contributions up to a specified percentage.

Why Does an Employer 401K Matching?

401k employer matching is one of the best job perks accessible to employees. But companies are not required to use these matches. They are under no duty to make any contributions to their employees’ accounts, even if they offer a 401(k) scheme.

So why do businesses match their employees’ 401(k) contributions?

Recruiting: A 401(k) company match program is a potent tool for encouraging candidates to come to work for a company. A company’s employer brand as a pioneer in creating a customer-focused organization can be strengthened by offering this kind of incentive to employees.
Retention: Workers are less likely to quit an organization that meets their needs in terms of money and provides appealing benefits. As a result, a strong 401(k) employer match program can help with staff retention. Additionally, retaining employees can assist employers in creating a more resilient organization.
A more effective workforce: Businesses can rely on their talent by providing benefit packages that make workers feel valued. They can profit from the knowledge and talent they are keeping. Additionally, since the individuals they develop are more likely to remain, a firm may invest safely in helping employees become leaders.

How Does 401K Matching Work

When you enroll in a company’s 401(k) plan as an employee, you get to choose how much you want to put down before taxes from each paycheck. After that, your employer will take this sum out of your check before calculating your income and payroll taxes.

For instance, if you chose to deduct 4% from your pre-tax income of $1,875 per pay period, you will be contributing $75 to your 401(k) account each pay period. Taxes on the remaining $1,800 will apply.

Finally, according to their matching practices, the employer will automatically make the contribution they agreed to. They might give you money in addition to matching a certain proportion of your donation.

The 401(k) employer matching regulations place restrictions on when and how often you can withdraw money from your account. The precise phrase for taking money out of a retirement account is a distribution. You can incur fees if you choose to take money out of your 401(k) plan early.

If you take money out before you become 59 ½ years old, the IRS deems it to be an early withdrawal. If you choose to do this, you will be subject to an additional 10% income tax (on this distribution).

Most businesses also employ a vesting schedule. This implies that until a specific amount of time has passed, they retain ownership of the money they match to your contributions. Instead, they will make separate investments with this money from your contributions.

They combine a specific percentage of that sum each year with employee contributions. Therefore, if a company’s matching contributions have a four-year vesting schedule, 25% of them become yours after a year. You would only be able to keep the full contributions after four years.

Types of 401(k) Employer Matching

There are variations in how 401(k) employer matching works. The rules for how much a company will match your contributions vary by business. Employer 401(k) matching is completely absent from some companies. For instance, small companies and tech startups frequently do not provide 401k matching. However, bigger businesses like airlines and insurance companies frequently match 401(k) payments.

The two basic kinds of 401k employer matching you’ll encounter are as follows:

#1. Partial matching

When your employer matches a percentage of your 401(k) contributions, but only up to a certain percentage. Some employers will match up to 50% of your savings. However, different percentages are also feasible. They could decide to match 2%, 25%, 75% of your contributions, or any other percentage you choose.

You can only contribute a certain percentage of your base salary to most companies before they stop matching. The standard is 4% or 6% of your yearly earnings.

#2. Dollar-for-dollar matching

A full match or a 100% match are other terms for a dollar-for-dollar match. The only difference between it and partial matches is that your employer will match your complete contribution. Similar to partial matches, this normally applies up to a specified extent.

401K Matching Calculator

A 401k matching calculator is a tool that can help you calculate how much your employer will contribute to your retirement savings plan, based on your personal contributions and your employer’s matching policy.

Your salary, your contribution rate (the proportion of your income that you put toward your 401(k), and your employer’s matching policy (the percentage of your contribution that your employer will match, as well as the maximum amount it will match) are often required inputs into the calculator.

The calculator will use this data to calculate how much your employer will match your contributions to your 401(k), based on your own contributions. This can aid in your decision-making regarding your contributions and investing strategy and help you comprehend the potential worth of your retirement funds.

It’s crucial to keep in mind that 401(k) matching regulations might differ greatly between employers, and some may not even give matching contributions. Therefore, before using a 401k matching calculator, it’s crucial to be aware of your specific employer’s policies.

Best 401K Matching Companies

Let’s examine a few companies that are well-known for their outstanding 401k matching plans. Based on their generous matching rates, vesting timelines, and the range of investment possibilities they offer, these best 401k matching companies were chosen.

#1. Boeing

Boeing has a 401(k) match program that is well-known. The aerospace company makes a very kind offer of a dollar-for-dollar match up to a particular percentage of the employee’s income. Additionally, Boeing features a profit-sharing program with particular eligibility criteria that could increase your retirement funds.

They provide a 75% match on the first 8% of qualified earnings in addition to a 3%–5% age-based corporate contribution.

#2. Microsoft

Microsoft’s 401(k) match plan is unique in the tech sector. Up to the IRS-set contribution cap, they offer a 50% match of the employee’s contribution. An employee’s retirement funds might quickly increase thanks to their generous match rate.

Additionally, Microsoft offers quick vesting, which means that you immediately acquire full ownership of your employer’s contributions. Microsoft’s 401(k) match plan is among the best thanks to this benefit and a variety of interesting investment possibilities.

#3. Amazon

Another business that provides 401(k) match schemes is Amazon. Employees are eligible to enroll in the 401(k) plan through Amazon as of the day of their hire. In addition, they match 4% of employee contributions up to 50%. Employeesbye with their schedule, becoming completely vested after three years.

#4. Google

Google enrolls 401(k) participants automatically. If a new employer does not choose to make a different contribution level, they are automatically registered at 10% of their qualifying wage.

In addition, Google matches 50% of the employee’s contribution up to $19,000. The employer will match either 100% of the employee’s contribution up to $3,000 or 50% of it up to a maximum of $9,500 annually, whichever is greater.

#5. ConocoPhillips

An international producer of crude oil by the name of ConocoPhillips gives its workers a 6% match if they put at least 1% of their income into a 401(k). Then, based on business performance and other circumstances, the company makes discretionary payments of up to an additional 6%. ConocoPhillips intends to make a minimum 3% discretionary contribution under the company’s plan, for a total 9% matching contribution.

#6. Philip Morris International Inc.

Tobacco giant Philip Morris International first matches up to 5% of an employee’s qualified contributions. Then, dependent on the company’s annual performance, it contributes an additional 7% to 15% of the employee’s salary.

#7. Amgen Inc.

Each Amgen employee is automatically enrolled into the 401(k) plan at hire with a 5% contribution, which they are free to change. The first 5% of the employee’s contributions to their plan that Amgen receives will be matched 100%. In addition, regardless of whether the individual contributes to their 401(k) or not, the firm automatically contributes up to 5% of eligible earnings each pay period.

#8. CVS 401k match

One of the top healthcare companies in the US, CVS offers its staff members a significant 401k matching plan. The first 5% of an employee’s retirement plan contributions are matched 100% by the firm. The employer’s contribution is immediately fully vested. In order to cover medical expenses, the employer also makes contributions to the health savings accounts of the workers.

#9. Apple 401k

One of the best employers for 401k matching contributions for employees is Apple. For the first two years of employment, Apple will match 50% of the first 6% of qualified earnings that are deposited into the plan. For employees with two to five years of service, the match rises to 75%; for employees with more than five years, it rises to 100%.

Remember that these are only a few examples among the many excellent 401k matching plans offered by companies. Think about the compensation and work description, the 401(k) program’s quality, and the match percentage when assessing possible employers. Your long-term financial stability can be dramatically impacted by a substantial 401(k) match.

Google Matching 401K

Google is well recognized for providing its employees with a very appealing 401(k) matching program. Google’s website states that up to the first 3% of an employee’s eligible compensation, the company will match employee contributions dollar for dollar, and for the subsequent 2% of eligible compensation, Google will match contributions at a rate of 50%.

As an illustration, if a worker earns $100,000 in qualified remuneration and contributes 5% of their pay ($5,000) to their 401(k) matching, Google will match the first 3% ($3,000) dollar-for-dollar and the next 2% ($1,000) at a rate of 50 cents on the dollar, for a total matching contribution of $3,500.

In other words, an employee who contributes the maximum amount permitted by the IRS ($19,500 in 2021) and receives the full matching contribution from Google may have a total contribution to their 401(k) matching account of $32,500 in a single year.

It’s important to keep in mind that Google 401(k) matching policy is subject to change and may differ based on a worker’s particular employment contract. For additional information about your employer’s matching rules and how they might help your retirement savings, it’s always a good idea to speak with your financial advisor or your HR department.

What Does 3% Matching 401K Mean?

Consider that your yearly 401(k) contribution is $1,800, or 3% of your $60,000 income. Your total annual contributions would increase to $3,600 if your employer matches your 401(k) contributions up to 3% of your salary, adding an amount equivalent to 100% of your contributions.

What Is the Best Match for 401K?

Safe Harbor 401(k) matching formulae that are most frequently used include:

A basic match of 100% on the first 3% of employee contributions and 50% on the following 3-5%
100% enhanced match on the first 4–6% of employee contributions
At least 3% of employee compensation, regardless of employee deferrals, (nonelective contribution).

Is 401K Match Worth It?

Yes, 401(k) employer contributions can raise employee satisfaction and retention, draw in stronger candidates, and help your business financially.

Can I Contribute 100% Of My Salary to My 401K?

Yes. You may contribute as much as 100% of your salary to many 401(k) plans (up to the IRS-published annual maximum restrictions).a

Is 6% 401K Match Good?

Yes. According to a Vanguard survey, the median employer match in 2020 was 3% of the salary, and the average was 4.5%. In 2023, a “good” 401k match will be one where you receive at least 4% to 6% in employer matching. A score of “great” would be anything over 6%.

What Happens to 401K When You Quit?

Your 401(k) will remain in place if you quit your employment until you determine what to do with it. You can leave it in place, transfer it to another retirement account, or cash it out, among other options.

Should I Do 401K if No Match?

In the majority of situations, contributing to a 401(k) still makes sense because it can provide considerable tax benefits.

Conclusion

The extra money that Americans who contribute to their 401(k) plans at work can accumulate through employer matching is one of the major benefits. The benefit of matching may or may not be provided by employers. But if they do, do your best to make the necessary contributitor to receive as much of these extra monies each year as you can. You can increase your future savings potential by doing this.