The short and simple answer is no. Employer matching contributions do not count toward your maximum contribution limit as set by the Internal Revenue Service (IRS), which for 2020 is $19,500 of your own money to your 401(k), $26,000 if you’re aged 50 or over ($19,000 and $25,000, respectively, for 2019). These are also the 2020 limits for a number of employee retirement plans that resemble the 401(k), including the 403(b), most 457 plans, and the federal government’s own thrift savings plan.
Nevertheless, the IRS does place a limit on the total contribution to a 401(k) from both the employer and the employee. It can't exceed the lesser of either 100% of the employee's salary or a certain limit. The limit in 2020 is $57,000, or $63,500 for those aged 50 or older ($56,000 and $62,000, respectively, for 2019).
- You can contribute up to $19,500 to your 401(k) for 2020 ($19,000 for 2019), or $26,000 if you’re age 50 or over ($25,000 for 2019).
- Any employer match that you receive does not count toward this limit.
- The same limits apply for 403(b) and 457 plans, and the federal government’s Thrift Savings Plan.
Understanding the 401(k) Plan
The 401(k) plan and the variations mentioned above are all long-term savings plans designed to help people build their retirement savings. They are all “qualified” plans, in IRS speak. That means they have certain tax benefits for the employee or the employer or both.
The tax advantage for employees, in most cases, is that their contributions are deducted from gross income, not net income. That reduces take-home pay. Less take-home pay means lower taxes, softening the blow, and the money goes into an investment account week after week, building long-term net worth.
For some 401(k) plans, employers can match some percentage of their employees’ contributions, but it’s strictly voluntary. Among employers who offer a match, the average is about 3% of the employee’s gross salary. This is effectively a 3% salary bonus, and any personal financial advisor will tell you that it’s nuts not to take full advantage of it.
The total contribution to a 401(k) plan from both employer and employee cannot exceed $57,000 for 2020 ($56,000 for 2019), or $63,500 for those aged 50 or older ($62,000 for 2019).
Other Retirement Plans
The 2019 contribution limits are the same for several other qualified retirement plans that are not as well known as the 401(k). These include the following:
- The 403(b) Plan: This retirement plan is designed primarily for employees of public educational institutions, nonprofits, and hospitals. It is often structured as an annuity or a pension plan that pays in regular installments after retirement. That differs from the 401(k), which is a lump-sum account that the employee can draw from after retirement.
- The 457 Plan: This is available primarily to public service employees such as police officers and firefighters. Unlike the 401(k), it does not have a 10% tax penalty for early withdrawals.
- The Thrift Savings Plan: This is exclusively for employees of the federal government and military personnel. However, this plan may undergo changes in January of 2022, when the SECURE (Setting Every Community Up for Retirement Enhancement) Act goes into effect.