A 401(k) employer match puts free money into your tax-advantaged retirement account. Take the time now to learn how 401(k) matching programs work. This way, you can expedite your wealth progress and lay the groundwork for financial security in your senior years.

Learn more: What is a 401(k)? A guide to the rules and how it works.

401(k) match defined

A 401(k) match is an employer-sponsored program that helps you save for retirement. Typically, the employer deposits money into your 401(k) in an amount that is contingent on your salary deferrals. Salary deferrals are your 401(k) contributions, which are deducted from your paycheck.

Your salary deferrals are subject to annual contribution limits set by the IRS. The 401(k) contribution limit in 2025 is $23,500 or $31,000 if you are over 50. Your employer matching contributions do not count toward those caps. However, there is a separate, higher cap that applies to your combined total contributions from salary deferrals and employer match. In 2025, that combined limit is 100% of your compensation or $70,000, whichever is less.

Common 401(k) matching rules

Every 401(k) matching program has matching rules, which are the formulas that define how much the employer will contribute. Matching rules can vary widely from one employer to the next. Many follow a one- or two-tier structure.

1. One-tier matching uses a single contribution formula that applies up to a percentage of your salary. For example, your employer might contribute $0.50 for every $1 you contribute, up to 6% of your salary.

2. Two-tier matching uses two formulas applied sequentially. An example is the employer that matches 100% of your contributions up to 3% of your salary plus 50% of your contributions on the next 2%. In this case, your salary deferral would have to be 5% of your pay to maximize your employer match.

In addition to the matching formula, some employers also cap annual matching contributions with a dollar limit.

Learn more: How much should I contribute to my 401(k)?

Up Next

• What is a 401(k)? A guide to the rules and how it works.

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• How much should I contribute to my 401(k)?

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• Retirement planning: A step-by-step guide

Defining a good 401(k) match

According to Vanguard's annual How America Saves report, the most common matching formula across Vanguard retirement accounts is $0.50 per dollar on the first 6% of pay. Under this arrangement, you would contribute 6% of your salary and your employer would match with a 3% contribution.

Relative to what's most common, you can define a good 401(k) match in two ways:

1. The formula matches more than 50% of your contribution. As an example, a program that fully matches your contributions up to 5% or 6% of your salary is competitive. In that case, you would contribute 5% or 6% and receive total contributions worth 10% or 12%, respectively.

2. The formula matches more than 6% of your salary. A match that contributes $0.50 to every $1 on up to, say, 8% of your salary is also generous. You would contribute 8% and receive total deposits worth 12%.

Companies with the best 401(k) match

For additional context on what a good 401(k) company match looks like, below are five employers that have lucrative matching rules:

1. Aerospace company Boeing matches 100% of your contributions on up to 10% of your salary, allowing savers to stash up to 20% of their pay.

2. Southwest Airlines fully matches your contributions on up to 9.3% of eligible earnings.

3. Conglomerate Honeywell contributes $0.875 for every $1 you contribute on up to 7% of your base salary.

4. Financial services company Citi fully matches your contributions on up to 6% of your salary.

5. Communications provider Comcast matches your contributions dollar-for-dollar up to 6% of your gross pay.

Vesting: Taking ownership of matching contributions

You can also evaluate a matching program by its vesting rules. Vesting rules define when you take ownership of those matching contributions.

The timing of ownership becomes important if you switch jobs. This is because you forfeit unvested contributions and their investment gains once your tenure with the employer ends. Typically, the employer will remove the funds from your account prompted by one of the following:

1. You transfer funds to another employer's 401(k) plans or a rollover IRA.

2. The fifth anniversary of your resignation date has passed, and you have not resumed work for that employer.

Some employers allow for immediate vesting, while others use a phased schedule. Phased vesting might transfer ownership to you over five years, such as:

1. Year 1: You do not own any matching contributions.

2. Year 2: You own 20% of the matching contributions.

3. Year 3: You own 40% of the matching contributions.

4. Year 4: You own 60% of the matching contributions.

5. Year 5: You own 80% of the matching contributions.

6. Year 6: You own 100% of the matching contributions.

Under this schedule, you would keep 40% of your matching contributions if you quit during your third year of employment. The remaining 60% plus any associated investment returns would be forfeited. Note that your account balance may reflect all contributions, vested or not, until unvested funds are recaptured by the employer.

The long-term value of employer match

You can project the long-term value of any matching program using a compound interest calculator. To demonstrate, let's establish some context. Say you make $75,000 annually, and your employer matches $0.50 for every $1 up to 6% of your pay. You plan on investing primarily in stock funds and retiring in 20 years. For simplicity's sake, your salary net of inflation remains the same over the 20 years.

With a 6% salary deferral, you will make $90,000 in contributions in that timeframe. Assuming your 401(k) earns an average 7% annually after inflation, those contributions will grow to an ending balance of about $185,930 — not including employer match.

Under the same growth and timing assumptions, the matching contributions will add nearly $93,000 to your ending balance. That amount can make a significant difference in your quality of life in retirement.

Build financial security with free money

Over time, your employer match can add tens of thousands of dollars to your retirement wealth. Make use of it by setting your contribution rate high enough to collect every penny of free retirement money available to you.