Can You Have a 401(k) Without an Employer Match?

Most employers will contribute to your 401(k), but it’s generally optional

As a benefit to employees, employers often offer matching contributions up to a limit to the contributions that employees make to their 401(k) plans. For example, an employer may match your contributions for up to 3% of your salary. However, employers aren’t required to make contributions to your retirement account, and some 401(k) plans have no employer match

In this article, we’ll look at how employer matches work and what to do if you are among the employees who don’t benefit from one.

Key Takeaways

  • Most traditional 401(k) plans offer employer matching contributions, but not all do.
  • Most employers match 3% to 6% of your salary, according to 2020 data collected by Vanguard.
  • A 401(k) has significant benefits even without an employer match, including tax benefits.

How Many Employers Offer 401(k) Matches?

Most companies with 401(k) plans today offer some kind of employer match. Vanguard, which administers plans for many large organizations, reported that in 2020, 86% of its clients provided an employer match. Of those, 50% offered the employer match only, while 36% provided both an employer match and nonmatching contributions. Nonmatching or nonelective contributions are made by employers regardless of whether the employee contributes to their account. Another 10% provided nonmatching contributions only.

Some matches are more generous than others, and how they are computed varies from one plan sponsor to another. For example, Vanguard counted more than 180 distinct matching formulas among its clients. Of those plans, 72% used a single-tier match formula, such as 50 cents on the dollar on the first 6% of pay. Less common, but used by 21% of plans, were multitier match formulas, such as $1 for $1 on the first 3% of pay plus 50 cents per $1 on the next 2% of pay. Other employers used even more complex matching formulas.

Overall, the Vanguard study showed that most 401(k) plans offered a match of 3% to 6% of the employee’s pay, with the estimated average being 4.5%.

Employers also differ in terms of when their matching contributions vest, or when the money actually belongs to the employee. While the employee’s own contributions vest immediately, matching contributions vest according to the plan’s terms. In some cases, they will be immediately vested, as was the case for 48% of plans in the Vanguard study. In others, they will vest over time through either cliff vesting or graded vesting.

In cliff vesting, an employee may have to attain a certain minimum number of years of service for their employer’s matching contributions to vest. For example, they may be 0% vested for the first two years, then 100% vested after three years.

In graded vesting, the employer match will vest in stages. For example, an employee might be 20% vested after two years, 40% after three years, and so on until they are 100% vested after six years.

The rules for traditional 401(k) plans do not require employers to make matching contributions. However, safe harbor 401(k) plans, typically used by small businesses, require that the employer make either a matching contribution or a nonelective contribution. Similar rules apply to any 401(k) with an automatic enrollment feature.

What to Do If Your Employer Doesn’t Match

If your 401(k) plan has any kind of employer match, consider funding your account at least up to that amount to get the full benefit. If your employer doesn’t offer a match, investing in your 401(k) still has advantages, especially if it has a variety of asset options that match your investing goals.

As a tax-advantaged retirement account, you can deduct your contributions from your taxable income. You can contribute substantially more to a 401(k) than to an individual retirement account (IRA), so you can take a larger tax deduction. The maximum that you can contribute to a 401(k) in 2022 is $20,500 if you’re under age 50 or $27,000 if you’re 50 or older. With IRAs, the limits are $6,000 and $7,000, respectively.

However, if your 401(k) doesn’t offer the investment options that you want, or if you have concerns about how it is managed, you have other options. For example, you could fund an IRA up to the limit and put any additional money into a regular mutual fund or brokerage account. You won’t enjoy the same tax advantages in a typical brokerage account, but you can invest toward building your retirement savings.

What is the maximum employer match for a 401(k)?

By law, total contributions to an employee’s 401(k) plan can’t exceed 100% of an employee’s compensation or be over a certain dollar amount. In 2022, the limit for total contributions is $61,000 for employees under age 50 and $67,500 for those ages 50 and older. That includes both employee contributions and employer matching contributions. So, if an employee under age 50 contributed the maximum of $20,500, the employer could theoretically contribute as much as $40,500 in 2022. There is also a limit on how much of an employee’s income the plan can use to calculate a match. In 2022, for example, the limit is $305,000.

Can an employer change its 401(k) match?

With a traditional 401(k), the employer can change or even eliminate its match from year to year. With a safe harbor 401(k), however, the employer must make either a matching contribution or a nonelective contribution.

How does vesting work in a safe harbor 401(k)?

Both employee contributions and employer contributions to a safe harbor 401(k) are immediately 100% vested. With a traditional 401(k), the plan can stipulate that matching contributions vest over a period of time.

The Bottom Line

Most 401(k) plans offer some kind of employer matching contribution, although the formula for calculating it—and how soon the money will actually belong to the employee—can vary from one employer to another. Even if your employer doesn’t provide a match, you may still want to contribute to the plan so you can enjoy the immediate tax deductions and years of tax deferral that a 401(k) offers.

Article Sources
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  1. Vanguard Institutional. “How America Saves 2021,” Page 20 (Page 22 of PDF).

  2. Vanguard Institutional. “How America Saves 2021,” Page 21 (Page 23 of PDF).

  3. Internal Revenue Service. “Retirement Topics — Vesting.”

  4. Vanguard Institutional. “How America Saves 2021,” Page 19 (Page 21 of PDF).

  5. Internal Revenue Service. “Operating a 401(k) Plan.”

  6. Internal Revenue Service. “IRS Announces 401(k) Limit Increases to $20,500.”

  7. Internal Revenue Service. “Retirement Topics — 401(k) and Profit-Sharing Plan Contribution Limits.”

  8. Internal Revenue Service. “2022 Limitations Adjusted as Provided in Section 415(d), etc.,” Pages 1–2.

  9. Internal Revenue Service and U.S. Employee Benefits Security Administration. “401(k) Plans for Small Business,” Pages 4–5 (Pages 6–7 of PDF).

  10. Internal Revenue Service and U.S. Employee Benefits Security Administration. “401(k) Plans for Small Business,” Page 6 (Page 8 of PDF).

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