401(k) match
How the employer 401(k) match works
An employer match is a dollar-for-dollar or partial contribution your company makes to your 401(k) based on how much you put in. The most common formula is "50 cents on the dollar up to 6% of salary." On a $75,000 salary, that means if you contribute 6% ($4,500), your employer adds $2,250 — an immediate 50% return on your money before any market gains.
The real cost is less than you think
A pre-tax 401(k) contribution lowers your taxable income. In the 22% bracket, every $1 you contribute costs you only about $0.70 in reduced take-home pay (after saving $0.22 in federal tax plus a small state-tax saving). To capture a $2,250 match, you contribute $4,500 per year — but your paycheck drops by only about $3,150 in after-tax terms. You effectively spend $3,150 to get $2,250 in free money, a guaranteed 71% return.
| Salary | Your 6% | 50% match | Real paycheck cost* |
|---|---|---|---|
| $50,000 | $3,000 | $1,500 | ~$2,280 |
| $75,000 | $4,500 | $2,250 | ~$3,510 |
| $100,000 | $6,000 | $3,000 | ~$4,560 |
| $125,000 | $7,500 | $3,750 | ~$5,700 |
*Approximate paycheck reduction at the 22% or 24% federal bracket (no state tax). Actual cost depends on your marginal rate.
Vesting: when the match is truly yours
Many employers use a graded vesting schedule — 0% in year one, then 20% per year until fully vested at year six. If you leave before full vesting, you forfeit the unvested portion. Your own contributions are always 100% vested. Check your plan's vesting schedule before counting on the match in your net-worth calculation.
Questions
401(k) employer match FAQ
How does a 401(k) employer match work?
Your employer contributes a set amount to your 401(k) based on how much you contribute. A common formula is 50% match on the first 6% of salary you defer. On a $75,000 salary, contributing 6% ($4,500) earns a $2,250 match. You must contribute at least the match threshold to get the full amount.
What does it cost me to get the full match?
Less than you think. A pre-tax 401(k) contribution reduces your taxable income, so each dollar you defer costs you roughly $0.70 to $0.80 in take-home pay depending on your tax bracket. To capture a $2,250 match on a $75,000 salary, your paycheck drops about $130 per bi-weekly period — but you gain $87 in free employer money per period.
Is an employer match taxed when I receive it?
No, not immediately. Employer match contributions go into your 401(k) pre-tax. You pay ordinary income tax on them only when you withdraw the money in retirement. This deferral lets the full match amount grow tax-free for decades.
What happens to the match if I leave the company?
Most employers have a vesting schedule. You might be 0% vested until year two, then vest in increments (e.g., 20% per year) until fully vested at year six. Any unvested match is forfeited when you leave. Your own contributions are always 100% yours.
Should I contribute more than the match threshold?
Capturing the full match is the top financial priority because it is an immediate 50% to 100% return. After that, whether to contribute more depends on your other debts and goals. Many advisors suggest aiming for a total of 15% of income (your contribution plus match) toward retirement.
Does the match count toward the 401(k) limit?
The employer match does not count toward your $24,500 employee deferral limit for 2026. It does count toward the combined employee-plus-employer limit of $72,000. In practice, most workers are nowhere near the combined limit.
- Sources: IRS Rev. Proc. 2025-32 (2026 deferral $24,500, combined $72,000) · ERISA vesting requirements · SSA 2026 wage base ($184,500).
- 🔄 Last updated July 2026 · Tax year 2026
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