Making Contributions to a 401(k) Plan

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Making Contributions to a 401(k) Plan

Contributions to a 401(k) plan can come from employers, employees, or both. They can take the following forms:

Matching contributions

These are contributions that an employer makes to an employee’s plan after the employee has contributed. For example, assume the employer agrees to deposit (or match) 50 percent of the employee’s first 10 percent deferral. In such an instance, if the employee deposited 10 percent, the employer would add an additional 5 percent. The total percentage deposited for the employee therefore would equal 15 percent.

Elective contributions

These are before-tax contributions made by an employee. They are funds that the employee could have taken as a cash amount but instead deferred to the plan. They are also called elective deferrals.

Automatic enrollment

Companies are allowed by law to automatically enroll employees in defined-contributions plans such as 401(k)s. Employees may opt out of that if they wish.