What Does a 4% 401(k) Match Mean?

A 401(k) plan is a common employer-sponsored retirement savings vehicle. These plans offer tax benefits, encouraging employees to set aside a portion of their income for retirement. Contributions to a traditional 401(k) are often pre-tax, reducing taxable income in the year they are made, with taxes deferred until withdrawal. This tax deferral allows savings to grow faster over time.

Basics of 401(k) Employer Matching

An employer match in a 401(k) plan is a direct contribution from the employer to an employee’s retirement account. This contribution is typically contingent upon the employee also contributing their own funds. It functions as a valuable form of compensation, supplementing an employee’s personal savings. Employer matching contributions are generally made on a pre-tax basis, becoming subject to income tax upon withdrawal during retirement, similar to employee contributions.

Interpreting a 4% Match

A “4% match” indicates the maximum employer contribution an employee can receive, as a percentage of their salary. This is typically achieved through one of two common formulas. One structure is a dollar-for-dollar match, where the employer contributes 100% of the employee’s contribution up to 4% of their annual compensation. For example, if an employee earns $60,000 and contributes 4% ($2,400), the employer also contributes $2,400.

Alternatively, a 4% match can be achieved through a partial match, such as the employer matching 50% of the employee’s contribution, up to 8% of their salary. For an employee earning $60,000, contributing 8% ($4,800) would result in an employer contribution of $2,400 (50% of $4,800). Both matching structures result in the same maximum employer contribution relative to salary. Details are outlined in the individual plan’s documents.

Maximizing Your Matched Contributions

To fully benefit from an employer’s 401(k) match, employees should contribute at least the percentage of their salary required to trigger the maximum employer contribution. Failure to contribute at this level means foregoing a valuable benefit. For instance, if the employer offers a 100% match up to 4% of salary, contributing at least 4% ensures the employee receives the full match.

Eligibility requirements often dictate when an employee can begin participating in the 401(k) plan and receive matching contributions. Common criteria include reaching age 21 and completing a certain length of service, such as one year of employment. Starting in 2025, the SECURE 2.0 Act mandates that certain part-time employees who work at least 500 hours per year for two consecutive years must be allowed to make elective deferrals to a 401(k) plan.

Employer contributions, including matching funds, are typically subject to a vesting schedule. This schedule determines when an employee gains full ownership of those funds. While an employee’s own contributions are always 100% vested immediately, employer contributions may require a period of service before becoming fully owned. Two common vesting types are cliff vesting and graded vesting.

Cliff vesting means an employee becomes 100% vested after a specific period, often three years, but has no ownership before that time. Graded vesting allows an employee to gradually gain ownership over a period, such as 20% per year over five years. If an employee leaves a company before their employer contributions are fully vested, the unvested portion is typically forfeited. However, contributions made to a Safe Harbor 401(k) plan are generally 100% vested immediately.

For 2025, the IRS sets the employee 401(k) deferral limit at $23,500. Employees aged 50 and older can contribute an additional $7,500 as a catch-up contribution. Under SECURE 2.0, individuals aged 60 to 63 can contribute an even higher catch-up amount of $11,250, if their plan allows. The combined total of employee and employer contributions to a 401(k) cannot exceed $70,000 for most individuals in 2025.