Can Retirement Catch-Up Contributions Be Matched?

Depending on the terms of your employer's 401(k) plan, catch-up contributions made to 401(k)s or other qualified retirement savings plans can be matched by employer contributions; however, the matching of catch-up contributions is not required. Also, the Internal Revenue Service (IRS) limits the total amount of annual contributions to 401(k)s by both the employee and employer.

As a result, it's important to understand the rules and restrictions regarding contributing to 401(k)s and whether a catch-up contribution will be matched or not.

What Is Retirement Plan Matching?

Your employer can match your contributions to your qualified retirement plan using various methods. The employer could contribute a set amount each year or decide not to match at all, depending on the terms of the plan.

Typically, employers match a percentage of employee contributions, up to a certain portion of the total salary. Occasionally, employers may elect to match employee contributions up to a certain dollar amount, regardless of employee compensation.

If an employer elects to match employee contributions—or deferrals—it is generally based on a calculation that limits the total amount that the employer is required to contribute. For example, an employer might match 50% of employee contributions up to 6% of their annual compensation. In other words, the employee would contribute 6% of their salary while the employer would provide a match in the amount of 3% of the employee's salary.

How Catch-up Contribution Matching?Is?Handled

The IRS allows plan participants age 50 and older to make annual catch-up contributions to encourage those nearing retirement to bulk up their savings. For 2023, the allowable catch-up contribution for 401(k) plans is $7,500 per year. For 2024, it remains the same at $7,500; however, catch-up contributions can only be made by employees who have maximized their traditional salary-deferral contributions.

Contribution Limits

The maximum amount that an individual plan participant can contribute to a 401(k) is $22,500 for 2022 and $23,000 for 2024. For an employee's catch-up contribution to be qualified for a match by their employer, the employee would need to contribute the maximum amount first.

The employer's 401(k) maximum contribution limit on any match is actually set quite a bit higher, at $40,500 for 2022 and $43,500 for 2023. As a result, the combined maximum amount that could be contributed to your?401(k) plan?between both you and your employer is $61,000 ($20,500 + $40,500) in 2022 and $66,000 ($22,500 + $43,500) in 2023. This means that your employer can potentially contribute much more than an individual to a 401(k), though this does not usually happen.

Catch-up Contribution

Employees aged 50 and older can contribute an additional $6,500 for 2022 and $7,500 in 2023, for a total employee contribution of $27,000 for 2022 ($20,500 + $6,500) and $30,000 for 2023 ($22,500 + $7,500).

As a result, the maximum contribution amount for those aged 50 and over—including from the employer—can be $67,500 ($40,500 + $27,000) in 2022 and $73,500 ($43,500 + $30,000) in 2023.

However, if your plan allows for employer matching of catch-up contributions, the total amount of employer funds that can be contributed is still subject to the matching rules specified by your plan. In other words, the employer might set a dollar-amount limit or cap for the total amount that they'll match and contribute.

Example of Catch-up Contribution Matching

Let's say, as an example, an employee who's over 50 years old earns $50,000 per year. The employer has offered a 50% match and established a maximum amount of $3,000 that the employer will contribute in one year.

The employee wants to make a catch-up contribution and, as a result, needs to contribute at least $22,500 to be eligible in 2023. If the employee contributes $22,500, the employer's match based on the percentage would be $11,250 or 50% of $22,500; however, the employer would have already hit the $3,000 limit and, therefore, would not be matching anything beyond the $3,000 already contributed.

On the other hand, let's say the employer had a generous matching program and didn't have a $3,000 maximum match but instead paid up to the $43,500 employer limit for 2023. The catch-up contributions would be matched since the employee's total contributions for 2023 would be $30,000 (or $22,500 + $7,500), and the total match would equal $15,000 for the year.

The Bottom Line

The matching of catch-up contributions is not required for a 401(k); in fact, matching is not necessarily required for regular contributions either, and the match amount is always decided by the company. Depending on the employer's terms regarding the 401(k) plan offered, catch-up contributions can technically be matched if the employer contributes up to the amount allowed by the IRS.