A 401(k) plan is one of the most convenient ways to stash away dollars for retirement. Funds contributed to the account can be deducted from your taxable income that year, and the money can be put in investments with the goal of growing your savings over time. But perhaps the biggest motivator to contribute to a 401(k) plan is an employer’s 401(k) match.
Many firms offer to match employee contributions to the 401(k) plan. Typically the employer contributes a certain amount to the employee’s 401(k) plan based on formulas and policies set by the company.
[Read: How to Maximize Your 401(k) Match.]
The Typical 401(k) Match
When an employer decides to offer a 401(k) plan for its workers, there are different types of plans on the market to choose from. The arrangement provided in these plans can vary from company to company. Two common forms of matching are partial matches or dollar-for-dollar matches.
With partial matches, the idea is that when you contribute to the plan, your employer will also put in a portion of that amount, based on a formula. “Partial matches are when your employer will match part of the money you put into your 401(k), up to a certain amount,” says Scott Schleicher, a financial planning specialist group manager and senior financial advisor at Personal Capital in Denver, Colorado.
Many companies opt for the partial match in their plan. “The typical 401(k) match is 50 cents on the dollar up to 6% of the employee’s pay,” says Skeff Bisset, director of financial professional development at Wealth Continuum Group in Wilton, Connecticut. For instance, your employer might offer a partial match of 50% of what you contribute, up to 6% of your salary. If you earn $100,000 a year, the portion of your salary that is eligible for a match is $6,000, which is 6% of your salary. Since the company offers to match 50% of your contribution, you could expect the employer to contribute $3,000.
With a dollar-for-dollar arrangement, you can expect your employer to contribute the same amount as you do, up to a point. “An example of dollar-for-dollar is up to 5% of your salary,” Schleicher says. For instance, perhaps you earn $100,000 a year and put 5% of your salary in a 401(k), which is $5,000. Your employer would contribute another $5,000. If you saved 2% of your salary in the 401(k), which amounts to $2,000, the company will also put in another $2,000. If you save more, such as 6% of your pay (which is $6,000), the company will only put in 5% (which is $5,000), per the policy.
[Read: How Much Should You Contribute to a 401(k)?]
Generous Employer 401(k) Matches
Some companies choose to offer higher matches to recruit and reward employees. Here are examples of several companies with generous employer 401(k) matches:
— Boeing.
— Citigroup.
— Honeywell International.
— Microsoft.
— Qualcomm.
— Southwest.
[Read: New 401(k) Contribution Limits for 2022.]
Boeing
The company will match dollar-for-dollar the contributions of nonunion workers, up to 10% of their base and incentive pay. The employer contributions are fully vested immediately. Beginning in 2023, student loan debt payments made by U.S. employees may also qualify for an employer 401(k) match.
Citigroup
Employees who have a 401(k) plan through Citigroup can expect a dollar-for-dollar match up to 6% of their eligible pay each year. Eligibility for the matching contribution begins after working at Citi for a year. If an employee contributes $6 of eligible pay, the company will also contribute $6, for a total of $12 to invest. This continues until the employee’s contributions surpass 6% of their eligible pay for the year. Citi additionally provides a fixed contribution of up to 2% of eligible pay, regardless of whether the employee contributes to the plan, for workers who meet certain criteria.
Honeywell International
For workers with a 401(k) plan, the company matches the first 8% of eligible pay at a rate of 87.5%. This continues up to 7% of base salary. The match is made in January of each year, and applies to the contributions from the previous calendar year. Honeywell’s matching contributions vest after three years of service. To be eligible for the match, employees must participate in the plan and contribute to their account. They will also need to be employed through December 15 to receive a match for the corresponding year.
Microsoft
Through the 401(k) plan, employees can receive a $0.50 match for every pre-tax or Roth dollar saved. The match continues until the worker has reached the IRS contribution limit. In 2023, those enrolled in a 401(k) plan can place up to $22,500 in the account, or $30,000 for those age 50 and older. Both the match and contribution are vested from the first day.
Qualcomm
Qualcomm, which develops technologies and products for mobile devices and wireless communications, has structured its 401(k) plan so that employees at the lowest end of the pay scale can obtain a high level of matching. An employee receives a match of 100% up to the first $1,500 that is contributed to the plan. For the next $1,500 saved by an employee, the company provides a 50% match. A 33% match is offered for the following $7,500. After that amount, employees receive a 10% match on their contributions. This continues up to the IRS contribution limit.
Southwest
Workers with a 401(k) plan through Southwest can expect to double their retirement savings up to a point. When workers contribute to the plan, Southwest will match the contributions dollar-for-dollar up to 9.3% of an employee’s eligible earnings. Employees can also roll over funds from their previous employer.
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Companies With Great Retirement Plans originally appeared on usnews.com
Update 11/16/22: This story was published at an earlier date and has been updated with new information.
