New 401(k) Rules For 2021

The typical employer match is somewhere between 3% and 6% of the employee’s salary. First, a common way is for an employer to match your contributions dollar-for-dollar up to a certain percentage. 

As a second possibility, employers may also decide to use a “stretch” match. This means the company matches half of employee contributions up to a maximum percentage of total salary or compensation.

Example:

  • Maximum of 8% of salary
  • Employer matches 50% of employee contributions up to 8%
  • Employee contributes 8% of their salary
  • Total employer contribution = 4% of employee salary 

Some employers may even choose to set a fixed dollar amount for all employees. This doesn’t necessarily encourage employees to contribute more. But as long as they put away something in a 401(k), the employer would then add in whatever amount they had chosen. 

If you’re in an awesome financial position and decide to put away your maximum $19,500, great! Then if your employer offers a 100% match of your contributions, the total maximum contributions for 2021 would be $58,000. (However, be aware that contributions can’t exceed your income, so if your income is below $58,000, that number would be your maximum.)

Catch-up Retirement Contributions

Another nice feature of most 401(k) retirement accounts is that you have a chance to sock away even more once you’re past a certain age. This is really helpful for several reasons.

At or past age 50:

  • your salary may be higher than before
  • your expenses may decrease due to children moving out or another change in lifestyle
  • you may not have saved much for retirement yet

If you haven’t yet been able to put much into your 401(k), once you reach age 50 and beyond,  you can make catch-up contributions. The maximum you can add is $6,500 to your yearly contributions under the new 401(k) rules for 2021. 

Combine the first $19,500 with the additional $6,500 in catch-up funds, and your total maximum 401(k) contribution for 2021 is $26,000. If you’re earning enough income to cover your expenses and put away that much for retirement, it’s a smart strategy to save as much as possible. 

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