Depending on the terms of your employer’s 401(k) plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans may be matched by employer contributions. However, catch-up contribution matching is not required, and it is subject to the same maximum contribution limitations as all other contributions.

For 2019 and 2020, for retirement savers 50 and older, a maximum of $7,000 may be contributed to their 401(k) each year ($6,000 for younger than 50).

Key Takeaways

  • Many employers match 401(k) retirement plan contributions made by employees, where each worker under age 50 can contribute up to $19,500 for 2020.
  • Catch-up contributions of an additional $6,500 are available to workers age 50 and older for 2020.
  • These catch-up contributions may also be matched subject to maximum caps.

What Is Retirement Plan Matching?

Your employer may match your contributions to your qualified retirement plan if it elects that option, or it may simply contribute a set amount each year instead. Depending on the terms of your employer’s 401(k) plan, your contributions to your retirement savings may be matched by employer contributions in a number of ways.

Typically, employers match a percentage of employee contributions, up to a certain portion of the total salary. Occasionally, employers may elect to match employee contributions up to a certain dollar amount, regardless of employee compensation.

If an employer elects to match employee deferrals, it is generally based on a simple algorithm that limits the total amount the employer can be required to contribute. A common structure is for the employer to match 50% of employee contributions up to 6% of annual compensation. Regardless of whether contributions to your 401(k) come from you or from employer matching, all deferrals are subject to an annual contribution limit dictated by the Internal Revenue Service (IRS).

Matching contributions to a 401(k) from your employer are generally limited by a simple algorithm derived from the employee’s salary and contribution amounts.

How Catch-Up Contribution Matching Is Handled

The IRS allows plan participants age 50 and older to make annual catch-up contributions to encourage those nearing retirement to bulk up their savings. For 2020, the allowable catch-up contribution for 401(k) plans is $6,500 ($6,000 for 2019). However, catch-up contributions can only be made by employees who have maximized their traditional salary-deferral contributions.

The maximum amount that an individual plan participant can contribute to a 401(k) as of 2020 is $19,500 ($19,000 for 2019). The employer’s 401(k) maximum contribution limit on any match is actually set quite a bit higher, at $37,500 per year for 2020 ($37,000 for 2019).

Combined, the maximum that can be contributed to your 401(k) plan between both you and your employer is $57,000, up from $56,000 in 2019. This means that your employer can potentially contribute much more than an individual to a 401(k), although this is not at all usual. However, employees 50 and older can contribute an additional $6,500 for 2020, for a total employee contribution of $26,000 and a maximum contribution from all sources of $63,500.

If your plan allows for employer matching of catch-up contributions, the total amount of employer funds that can be contributed is still subject to the matching algorithm specified by your plan.

For example, assume an employee age 50 or older makes $50,000 a year. Using the algorithm referenced above, the maximum amount the employer will contribute is $3,000 (which is 6% of the employee’s salary of $50,000). However, the employee needs to contribute at least $19,500 to be eligible to make catch-up contributions. As 50% of $19,500 is $9,750, the employer would have already hit the $3,000 limit and therefore would not be matching any catch-up contributions.

But in the event that your employer has a particularly generous matching algorithm or matches contributions up to the $37,500 limit for 2020, your catch-up contributions might be matched.