Do Company Matched 401(K) Funds Count Against My Limit?
A 401(k) plan is a common type of tax-advantaged retirement account that some employers offer to their workers as a benefit. Money you save in a 401(k) plan is tax deductible and you do not pay taxes on funds in the account or investment growth in the account until you withdraw money during retirement. If your company offers contribution matching, the money your employer contributes to your 401(k) does not count against your personal contribution limit.
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How Matching Contributions Work
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Contribution matching describes a benefit that some employers offer to employees that decide to save using a 401(k) plan. Under contribution matching, an employer puts a certain amount money into your 401(k) for each dollar that you contribute. For example, your company might offer 50 percent contribution matching, which means if you were to save $4,000 in your 401(k) over the course of a year, your employer would contribute 50 percent of that amount, or $2,000, into your account on your behalf.
Basic 401(k) Contribution Limit
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Employees have a fixed annual contribution limit on 401(k) plans. According to the IRS, the most you can contribute to a 401(k) in 2011 is $16,500. The limit is increased to $22,000 if you are age 50 or older. The contribution limit can change from one year to the next because the IRS periodically adjusts limits to account for increases in the cost of living.
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Additional Contribution Limit
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The amounts an employer contributes to your 401(k) plan as a part of a matching system do not count against your personal contribution limit. In other words, you could contribute the full $16,500 and your employer could match the entire contribution at 100 percent and put in an extra $16,500. The IRS states that there is, however, a maximum contribution limit on 401(k) plans equal to the lesser of 100 percent of your total compensation or $49,000 that applies to all contributions.
Considerations
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Employers often limit matching contributions to some preset maximum, such as a percentage of your income. For instance, an employer might match only 50 percent of your contributions up to 6 percent of your total pay for the year. Contributing at least enough money to gain the maximum matching contribution offered by your employer can help you maximize your retirement savings.
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