As mentioned above, there are a few different matching programs a company can offer, and each program has its own terms to consider. Here are 3 of the most common matches:
1. Partial 401(k) Match
A partial 401(k) match is when an employer will match a percentage of the money an employee puts into their account, up to a certain amount of their annual salary.
The most common partial match that you may have heard of is $0.50 on the dollar, for up to 6% of an annual salary. In other words, your employer matches half of whatever you contribute, but no more than 3% of your total salary.
For example, let’s say you make $80,000 per year, and you contribute 6% of your salary to your 401(k), which is $4,800. The employer will offer a 50% partial match, which would be $2,400, boosting your total amount invested for the year to $7,200.
2. Dollar-For-Dollar 401(k) Match
A dollar-for-dollar match, also known as a full match, is when an employer’s contribution equals 100% of the employee’s contribution, and the employee’s total contribution for the year is capped at a specific percentage of their annual salary.
If your employer offers a full match up to 5%, this means if you contribute 5% of your salary, you’ll be matched that amount fully in contributions to your 401(k). However, if you decide to contribute 6% of your salary, your employer will still only give 5%, since that is the determined max.
3. Non-Matching 401(k) Match
A non-matching 401(k) contribution is also referred to as a “profit-sharing” contribution and is made by employers regardless of whether an employee makes their own contributions to their 401(k). Employers will usually base how much they give in non-matching contributions on specific factors such as the company’s annual profit or revenue growth.
Like most other 401(k) matching programs, a non-matching contribution is capped at a percentage of an employee’s salary. For example, an employer may decide to give all employees a non-matching contribution equal to 4% of their yearly salary when certain goals are met. So, an employee who earns $50,000 a year would receive a $2,000 contribution to their 401(k), while an employee who made $100,000 would get $4,000, and so on.