How Does Roth 401(k) Matching Work?

Quick Answer

Your employer can match contributions to a Roth 401(k) the same way they would with a traditional 401(k). The primary difference: Matching contributions go into a traditional 401(k) account rather than a Roth 410(k) and aren’t taxed as additional income.

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If your employer offers a retirement plan, one of your options might be a Roth 401(k). A Roth 401(k) blends some of the best benefits of traditional 401(k)s and Roth IRAs―including the possibility of an employer match. Roth 401(k) matching contributions work much the same as traditional 401(k) matches, but the matching funds are deposited into a separate traditional 401(k).

How Does a Roth 401(k) Work?

A Roth 401(k) combines some of the tax advantages of a Roth IRA with the high income limits and employer match of a traditional 401(k). You don't receive a tax deduction for contributions you make to a Roth 401(k); contributions are made with after-tax dollars. But with a Roth 401(k) you won't be taxed on the money you pull out in retirement, which can help your retirement dollars go further.

Here's a quick comparison between a traditional 401(k), Roth IRA and a Roth 401(k):

Traditional 401(k) Roth IRA Roth 401(k)
Contributions Pretax After-tax After-tax
Income limits $305,000 Married: $214,000

Single: $144,000

No income limits
Contribution limits $20,500 in 2022

$27,000 if 50 or older

$6,000 in 2022

$7,000 if 50 or older

$20,500 in 2022

$27,000 if 50 or older

Taxes on withdrawals Withdrawals are subject to regular income tax Withdrawals are not taxed if you held the account for at least 5 years and withdrawals are made after age 59½, because of disability or after death. Withdrawals are not taxed if you held the account for at least 5 years and withdrawals are made after age 59½, because of disability or after death.
Required distributions Start at age 72 None Start at age 72

Source: IRS

Not all employers offer Roth 401(k)s as an option, but a growing number of companies do. A Roth 401(k) is available only through an employer-based retirement plan; you can't get a Roth 401(k) as an individual investor.

Roth 401(k) Contribution Limits

IRS contribution limits on a Roth 401(k) are significantly higher than for a Roth IRA. You can contribute up to $20,500 to either a traditional or Roth 401(k) plan for the 2022 tax year. If you are 50 or older, you can make an additional catch-up contribution of $6,500 for a total of $27,000. For a traditional or Roth IRA, the limit is $6,000 (or $7,000 if you're 50 or older).

Employer matching contributions are not included in your contribution limit. However, the combination of your contribution plus your employer's matching dollars can't be more than 100% of your salary or $61,000 ($67,500 if you're 50 or older) for the 2022 tax year.

How Roth 401(k) Matching Works

Your employer can match your Roth 401(k) contributions just as they do with a traditional 401(k), but with one major difference: Matching contributions go into a traditional 401(k) account instead of your Roth 401(k). Even if you choose to contribute to a Roth 401(k) only, you'll maintain both a Roth and a traditional 401(k) account—the latter for your employer's matching contributions. Because your employer's contributions go into a traditional 401(k), you don't pay taxes on them.

Employer plans vary. Some offer generous matching policies as a benefit to employees, while others don't offer matching at all. Two common types of matching programs include:

Dollar-for-Dollar Matching

In a dollar-for-dollar match, your employer contributes a dollar for every dollar you kick in. Most employers set a limit on their matching contributions. For example, they may match dollar for dollar up to 3% of your gross salary, or they may set a total dollar limit for the year.

Partial Matching

A partial match only matches a portion of your contribution. If your employer offers a 50% match up to 4%, they'll match half of what you contribute, in this case up to 2% (half of 4%) of your income.

How to Maximize a 401(k) Employer Match

Matching contributions act as an immediate return on your investment. If your employer matches your contributions dollar for dollar, you're essentially doubling your investment as soon as you make a contribution. Matching contributions increase your compensation—without having to ask for a raise.

It pays to maximize your employer match when you set up your retirement contributions. Follow these simple steps to ensure you're getting every dollar you can:

  • Figure out your employer's maximum contribution. If they match 50% of your contribution up to 6% and you earn $5,000 a month, their maximum contribution is 50% of $300, or $150.
  • Set up your required contribution. To receive $150 monthly from your employer, you'll need to contribute 6% of $5,000, or $300. You can contribute even more than what's required to max out your employer's match, as long as you stay within the IRS contribution limits. You can also split your contribution between a Roth 401(k) and a traditional 401(k), though your employer's matching dollars will always go into a traditional 401(k).
  • Learn your employer's rules on vesting. A vesting period is the time before your employer's retirement contributions become fully yours. In a typical arrangement, you might need to work for your employer for three years before gaining full ownership of matching contributions. If you quit or are terminated before three years are up, you may forfeit your matching money. Knowing your company's vesting policy can help you avoid leaving money on the table by changing jobs too soon. The funds you contribute to an employer-based retirement plan have no vesting period: They always belong to you.

The Bottom Line

Contributing to a Roth 401(k) can help you build a tax-advantaged source of income in retirement. If you receive matching funds from your employer, you have the opportunity to maximize your contributions and see an immediate return on your investment. Employers match Roth 401(k) contributions at the same rate as traditional 401(k) contributions (dollar for dollar or partially), but the funds go into a traditional 401(k) account instead of your Roth 401(k).

Making the most of your employer-sponsored retirement plan can be critical to financial stability in retirement, along with core financial skills like creating a budget and monitoring your credit. For help staying on top of changes to your credit, Experian offers free credit monitoring that alerts you to any major changes that happen to your credit score.

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