A 401K is one of the most common types of employer-sponsored retirement accounts in the US, but it’s only one type of account, and not standardized across the country. Some employers give the option for employees to contribute part of their salaries to a 401K (up to a certain limit), while others entice you by also matching your contribution. If your employer offers a 401K match, it’s essentially a retirement bonus from your place of employment. But before we cover 401K company match limits for 2019, let’s cover some basics.
What is a 401K?
A 401K is a savings plan specifically for retirement that’s sponsored by an employer. It’s beneficial because you don’t pay taxes on this money until it’s withdrawn. 401Ks started in the 1980s as a pension supplement. Pensions are no longer expected in many industries, which makes 401Ks especially attractive to job candidates.
You get to control how your money is invested within this account, and most plans feature a range of mutual funds made up of money market investments, stocks, and bonds. Most plans feature a combination of these investments and the investments get more conservative as you reach retirement age.
However, 401Ks also have a lot of restrictions. For instance, you usually have to work at a company a certain number of months or years before you can access the matched funds in your 401K. Part of the role of a 401K is to “keep employees.” There are a lot of rules around when and how to withdraw that you should discuss with a financial advisor if this is something you’re considering.
How Employer Matching Works
Employer matching is just what it sounds like: your employer will match your 401K contribution—up to predetermined 401K company match limits. It’s rare for an employer to match all of your contributions (and even if they do, you also have limits on how much individuals can contribute, which will vary based on a number of factors). The most common employer-matching scheme is for the employer to match the first six percent you contribute. This repeats every year.
Since plans can vary dramatically, it’s important to talk with your HR department or employer to determine exactly how much they will match. This can change yearly based on your earnings, too. However, even if your employer only matches part of your 401K, it’s still a good idea to contribute your maximum amount because of the tax deferral perk.
What are the Maximum 401K Company Match Limits for 2019?
Although the “first six percent rule” is expected to remain about average in 2019, some employers are especially generous. Every year, retirement plan contribution limits can change to account for inflation. Inflation is on the rise, which is why contribution maximum rose $500 in 2019 to $19,000 per employee. However, for those 50+, the “catch-up contribution limit” is the same, holding steady at $6,000.
In 2019, the contribution maximum rose to $19,000 per employee. The “all sources” maximum contribution (employee and employer combined) rose to $56,000.
If you’re wondering about the employer and employee contribution limits, it will increase $1,000 in 2019 to $56,000. However, if you’re considered a highly compensated employee (or HCE) your minimum compensation will increase to $125,000 in 2019.
How Much do Companies Usually Match in 401Ks?
This depends on your salary, but the first six percent has been the standard for many years. The only way to know for certain is to take a look at your 401K materials. Your employer may change these contributions over the years, but it’s rare that it will decrease (due to employee backlash). Talk with your HR representative today to learn more about your 401K options.