If you’re looking for competitive benefits, matching a 401k can be extremely attractive to candidates. Here are the 401k company match limits for 2023.
As one of the most common types of employer-sponsored retirement accounts in the U.S., a 401k is an attractive option for many job seekers. However, it’s just one of many types of retirement accounts, and the way it is handled isn’t standardized nationwide. Some employers will allow their employees to contribute a certain part of their salaries to a 401k up to a certain limit. Others will match the employee’s contribution. Think of a 401k match as a retirement bonus from your job.
What is a 401k?
A 401k is an employer-sponsored savings plan specifically designed for retirement. As such, you don’t pay taxes on the money you’ve saved until you withdraw it. 401ks were originally designed to supplement pensions and came about in the 1980s. Today, pensions are generally not part of a benefits package in several industries, so 401ks have surged in popularity as a result.
With a 401k, you decide how you want your money to be invested within this account. Generally speaking, most 401ks feature a variety of mutual funds that themselves contain money market investments, stocks, and bonds. The closer you get to retirement age, the more conservative these investments become to help further protect your savings at a cost of more rapid growth.
With that being said, 401ks come with a lot of restrictions. For example, you normally had to work at a company for some months before you can access the matched funds in your 401k. This is designed to help keep skilled and talented employees on board with the company. If you’re considering withdrawing funds from your 401k, it’s a good idea to consult with a financial advisor to determine which specific rules and regulations might apply to your situation.
How employer matching works
With employer matching, your employer will match your 401k contribution up to a certain match limit. Employers rarely match all of your contributions, and even if they do, there’s a limit on how much you, as an individual, can contribute. The most common employer matching scheme is for the employer to match the first 6% of your contributions every year.
Because plans vary dramatically from company to company, it’s a good idea to talk to your HR department or your employer to learn precisely how much they’ll match. Depending on your earnings, this amount can change from year to year as well. But even if your employer only matches part of your 401k contribution, it’s still a smart idea to contribute as much as you can, since all of those savings are tax-deferred in the meantime.
What are the maximum 401K limits for 2023
Although the “first 6% rule” is expected to remain about average in 2023, some employers can be especially generous. To account for inflation, retirement plan contribution limits can change. Since inflation is going up, contribution maximums will rise in 2023 to $19,500 per employee. For those aged 50 and up, the “catch up contribution limit” will hover around $6,200, not to exceed $6,500.
In 2023, the employer and employee contribution limits will again increase by $1,000 as it did in 2019, to a total of $59,000. But if you are a highly compensated employee (an HCE), your minimum contribution in 2023 will increase by $5,000 to $130,000 in 2023.
How much do companies usually match in 401Ks?
Normally, the standard company matching amount is 6%, but this depends on your salary and other factors. The only real way to know for sure is to look at your 401k materials. The numbers may change over the years. If you’d like to know more about your 401k options, it’s a good idea to speak with your HR representative.