Does the 401(k) max contribution limit include the employer match?

There is a maximum limit on the total yearly employee pre-tax salary deferral. The limit is $19,500 for the year 2021, . Employees who are 50 years old or over at any time during the year are now allowed additional pre-tax “catch up” contributions of up to $6,500 for 2021.

For future years, the limit will be indexed for inflation, increasing in increments of $500. In eligible plans, employees can elect to have their contribution allocated as either a pre-tax contribution or as an after tax Roth 401(k) contribution, or a combination of the two. The total of all 401(k) contributions must not exceed the maximum contribution amount.

If the employee contributes more than the maximum pre-tax limit to 401(k) accounts in a given year, the excess must be withdrawn by April 15th of the following year. This violation most commonly occurs when a person switches employers mid-year and the latest employer does not know to enforce the contribution limits on behalf of their employee. If this violation is noticed too late, the employee may have to pay taxes and penalties on the excess. The excess contribution, as well as the earnings on the excess, is considered “non-qualified” and cannot remain in a qualified retirement plan such as a 401(k).

Plans set up under section 401(k) can also have employer contributions that (when added to the employee contributions) cannot exceed other regulatory limits. The total amount that can be contributed between employee and employer contributions is the section 415 limit. Employer matching contributions can be made on behalf of designated Roth contributions, but the employer match must be made on a pre-tax basis.