How a 401(k) employer match, vesting and the 2026 contribution limits actually work

Four separate rules decide what actually lands in a 401(k) account each year — the deferral limit, the combined limit, the match formula and the vesting schedule — and mixing them up is a common and expensive mistake.

Updated September 2026

The 2026 limits, and why they get confused

Most arguments about "the 401(k) limit" come from treating one number as the limit. There are five, and they do different jobs. They sit in different sections of the tax code, they apply to different things, and only one of them is the number people usually mean when they say they are maxing out.

The figures below are from IRS Notice 2025-67, the cost-of-living notice the IRS issued on November 13, 2025 and summarized in its news release "401(k) limit increases to $24,500 for 2026."

The split that matters most: the $24,500 deferral limit follows the person, while the $72,000 combined limit follows the employer. The IRS instruction is to aggregate all elective deferrals you made to all plans in which you participate, so two jobs in one year do not give you two deferral limits. Two genuinely unrelated employers do, however, each carry their own annual additions limit.

What counts toward that $72,000: your elective deferrals, employer matching contributions, employer nonelective (profit-sharing) contributions, and allocations of forfeitures. Catch-up contributions do not reduce it — that is why the IRS states the limit as $72,000, or $80,000 with catch-up. And the limit is the lesser of the dollar figure or 100% of your compensation, so someone earning $40,000 is capped at $40,000 regardless.

The ages 60–63 band

SECURE 2.0 created a separate, higher catch-up band. For 2026 it is $11,250, which Notice 2025-67 describes as unchanged from 2025. Eligibility is measured by the age you attain during the year, not by a birthday: it applies for the whole of each year in which you attain 60, 61, 62 or 63, and the ordinary $8,000 catch-up returns for the year in which you attain 64. It is not added to the $8,000 — it stands in place of it. One precondition is easy to miss: the plan has to permit catch-up contributions at all before any of this is available to you.

A second 2026 change is mechanical rather than optional. Notice 2025-67 raised the Roth catch-up wage threshold from $145,000 to $150,000. Anyone whose 2025 wages from the employer sponsoring the plan exceeded $150,000 must have their 2026 catch-up contributions designated as Roth contributions. Both qualifiers matter. Section 414(v)(7)(A) uses Social Security (FICA) wages as defined in §3121(a), not total income, and it measures them from a single employer — so two jobs paying $90,000 each do not combine into $180,000 for this purpose, and neither one crosses the threshold.

How a match formula actually computes

A common misreading is treating a match cap as a match rate. A formula written as "100% of the first 3% of pay, then 50% of the next 2%" is two tiers, and the maximum employer money it produces is 4% of pay, not 5% — but it only produces that if you personally defer 5%.

Take a $78,000 salary on that formula:

• First tier: 3% of $78,000 = $2,340, matched at 100% → $2,340
• Second tier: the next 2% of $78,000 = $1,560, matched at 50% → $780
• Maximum employer contribution: $3,120, which is 4.0% of pay
• Your own deferral required to unlock all of it: 5% of pay, or $3,900

Note the shape of the last two rows. Past 5% of pay, every additional dollar you defer is matched at zero. The match is not a rate of return on the account; it is compensation that is contingent on a specific deferral level, and it tops out. You can model the full balance path in the 401(k) calculator.

The §401(a)(17) compensation limit changes this arithmetic for high earners. On a $420,000 salary and the same formula, the match is not 4% of $420,000. Only $360,000 of pay can be counted in 2026, so the maximum is 3% of $360,000 ($10,800) plus 50% of the next 2% of $360,000 ($3,600) — $14,400, which is $2,400 less than a naive 4% calculation would suggest.

Vesting: cliff, graded, and what the law permits

Money you defer from your own paycheck is yours immediately. Internal Revenue Code §401(k)(2)(C) requires that an employee's right to the accrued benefit derived from contributions made pursuant to their own election be nonforfeitable, and the IRS states the point flatly: elective deferrals are always 100% vested. Employer money is different. Section 411(a)(2)(B) lets a defined contribution plan impose a waiting period, and it sets the slowest schedules allowed.

• Three-year cliff (§411(a)(2)(B)(ii)): 0% vested through the first two years of service, then 100% once three years of service are complete. There is no partial credit — separating before the third year of service is complete forfeits all of it.
• Two-to-six-year graded (§411(a)(2)(B)(iii)): 20% at two years of service, then 40%, 60%, 80%, and 100% at six or more.

One definition does a lot of work here. A "year of service" is not elapsed time on the payroll. Section 411(a)(5)(A) defines it as a 12-consecutive-month computation period designated by the plan during which the participant completes 1,000 hours of service, so a part-time schedule, or a plan year that does not line up with your hire date, can put your service credit ahead of or behind the calendar.

Those schedules are maximums, not requirements. A plan may vest faster — many vest immediately, and the IRS notes that safe harbor plans must provide employer contributions that are fully vested when made. A plan may not vest slower. Two events override the schedule entirely: the IRS states that all employees must be 100% vested by the time they reach normal retirement age under the plan, or when the plan is terminated. Which schedule applies to you is set by your plan document, not by the tax code's default.

Two things decide whether a vesting schedule ever bites: whether there is employer money to vest at all, and how long people stay. On the first, BLS reported in its Employee Benefits in the United States — March 2026 release (published September 25, 2026) that retirement benefits were available to 72% of private industry workers and 52% participated, with defined contribution plans specifically at 70% access and 49% participation. Access is very unevenly distributed — 48% for workers in the lowest 25% of wages versus 92% for the highest 25%, and 55% at establishments with 1 to 49 workers versus 91% at those with 500 or more.

On the second, BLS reported median employee tenure of 4.1 years in January 2026, up from 3.9 years in January 2024, and just 3.0 years for workers aged 25 to 34. Someone on a six-year graded schedule who leaves with four years of service is 60% vested. On the $3,120-a-year match above, four years of employer contributions total $12,480; they keep $7,488 and forfeit $4,992, before counting any growth those dollars would have produced. Forfeited amounts do not vanish from the plan — they are typically reallocated to remaining participants or used to offset future employer contributions, and a reallocated forfeiture is itself an annual addition to the receiving participant's account, which is why "allocations of forfeitures" appears in the §415(c) list above.

True-up: why front-loading can cost you part of the match

This provision is easy to miss, because it only shows up in the arithmetic. Most plans compute the match per pay period, on that period's pay and that period's deferral. A few compute it on the full plan year. The difference only becomes visible if your deferral rate is uneven across the year.

Consider a $150,000 salary paid semi-monthly ($6,250 per period, 24 periods) on the same two-tier formula. Per period, the maximum match is 3% of $6,250 ($187.50) plus 50% of the next 2% ($62.50) = $250, or $6,000 across the year.

Now suppose the employee front-loads at 20% of each paycheck, or $1,250 per period. Nineteen periods take them to $23,750; the twentieth adds the final $750 and hits the $24,500 ceiling. That final $750 still exceeds 5% of the period's pay ($312.50), so the full $250 is earned in period 20. Periods 21 through 24 carry a $0 deferral — so under a per-period formula they earn $250 × 20 = $5,000 and leave $1,000 unearned, despite contributing the legal maximum.

A plan with an annual true-up recalculates after year end on full-year pay and full-year deferrals: 3% of $150,000 ($4,500) plus 50% of the next 2% ($1,500) = $6,000, and the plan deposits the $1,000 shortfall. A plan without one does not. Whether yours has a true-up is a plan-document feature. The mechanism is worth stating plainly: under a per-period formula, match is earned only in periods where a deferral is actually withheld, so a period with a $0 deferral earns $0 of match regardless of what was deferred earlier in the year. Bonus periods and mid-year raises change period pay, and therefore change that period's matched amount, by the same mechanics.

Traditional versus Roth deferral is a question about timing, not returns

Both options buy the same investments inside the same plan; the only thing that differs is when tax is paid. Per the IRS Roth comparison chart, traditional elective deferrals are made with before-tax dollars and reduce current taxable wages, and withdrawals are taxable federally and in most states; designated Roth contributions are made with after-tax dollars, and a qualified withdrawal of both contributions and earnings is not taxed — but it only counts as qualified if the account has been held at least five years and the withdrawal follows age 59½, disability or death.

Two points are easier to miss than the tax-rate comparison. First, the $24,500 limit is a single shared ceiling across both; you do not get one of each. Second, the tax treatment of the employer match is set by the plan and may not follow your own election — the IRS comparison chart addresses employee deferrals only. Which option leaves more after tax depends on your marginal tax rate when you contribute versus when you withdraw, and the second of those is unknowable in advance, which is why we take no position on it here. The levers you can actually test are in the retirement calculator and the retirement income calculator.

What these rules do not tell you

1. "Maxing out" almost never means $72,000. For an employee with no self-employment income, the binding constraint is the $24,500 deferral limit. The $72,000 figure is mostly reached by business owners making large nonelective contributions, or by employees of plans with unusually generous profit-sharing.
2. Calculator projections assume things the match does not do. Any 401(k) projection, including ours, applies a contribution rate to a growing salary at a constant growth rate. Real matches are tiered, computed per pay period, limited by $360,000 of countable pay, and subject to vesting — none of which a projection models. Our calculator does take a match rate and a match cap, but it applies them as a single tier to a full year of pay. Treat the output as a shape, not a forecast. Our investment growth calculator is useful for isolating how sensitive that shape is to the growth rate you assume.
3. Nothing here is specific to your plan. The tax code sets ceilings; your plan document sets the actual match formula, the vesting schedule, whether catch-up contributions are offered, and whether a true-up exists. Two people with identical salaries and identical deferral rates at different employers can end the year thousands of dollars apart for reasons that have nothing to do with the IRS limits. Because the match is contingent compensation rather than a fixed benefit, two offers with the same headline salary can also differ in total pay by the match a person actually captures; the salary to hourly calculator converts a salary figure to an hourly one if you are comparing offers on that basis.

This guide is educational and is not personalized financial, tax or legal advice. Figures are the 2026 amounts published by the IRS in Notice 2025-67 and are adjusted for inflation annually.

Common questions

What is the 401(k) contribution limit for 2026?

The employee elective deferral limit is $24,500 for 2026, up from $23,500 in 2025. Workers aged 50 and over can add an $8,000 catch-up contribution for a total of $32,500, and those who attain age 60, 61, 62 or 63 during 2026 can use a higher catch-up of $11,250 instead, for a total of $35,750. All figures are from IRS Notice 2025-67, issued November 13, 2025.

Does the employer match count toward my $24,500 limit?

No. The $24,500 limit applies only to your own elective deferrals. Employer matching and nonelective contributions count toward a separate, larger limit on annual additions, which is $72,000 for 2026 ($80,000 including catch-up contributions, or up to $83,250 for ages 60 to 63), or 100% of your compensation if that is lower. That combined limit applies per employer, with related employers counted as one.

How does a match of 100% of the first 3% then 50% of the next 2% work?

It is two tiers. On a $78,000 salary, the first 3% you defer ($2,340) is matched dollar for dollar, and the next 2% ($1,560) is matched at 50 cents per dollar ($780). The maximum employer contribution is $3,120, or 4% of pay, and it requires you to defer 5% of pay. Deferring more than 5% adds nothing further to the match.

What is the longest vesting schedule a 401(k) plan can legally use?

For employer contributions to a defined contribution plan, Internal Revenue Code section 411(a)(2)(B) permits either a three-year cliff (0% then 100% once three years of service are complete) or a two-to-six-year graded schedule (20% at two years, rising to 100% at six). Plans may vest faster but not slower. A "year of service" is defined by section 411(a)(5)(A) as a 12-month computation period designated by the plan in which you complete 1,000 hours of service, so it is not the same as elapsed months on the payroll. Your own elective deferrals are always 100% vested.

Can I lose employer match by contributing too much too early in the year?

Yes, if your plan computes the match per pay period and has no annual true-up. Under a per-period formula, match is earned only in periods where a deferral is actually withheld, so a period with a $0 deferral earns $0 of match regardless of what was deferred earlier in the year. On a $150,000 salary paid semi-monthly with a 4%-of-pay maximum match, front-loading so that the $24,500 ceiling is reached in period 20 of 24 leaves $1,000 of the $6,000 annual maximum unearned.

Is a traditional or Roth 401(k) deferral better?

That depends on your marginal tax rate now versus at withdrawal, which cannot be known in advance, so there is no general answer. Traditional deferrals reduce current taxable wages and are taxed on withdrawal; Roth deferrals are made after tax and qualified withdrawals are untaxed, but qualified status requires a five-year holding period plus age 59½, disability or death. One rule is not optional: if your 2025 Social Security (FICA) wages from the employer sponsoring the plan exceeded $150,000, your 2026 catch-up contributions must be designated Roth. That test is per-employer, so wages from two jobs are not added together.

Sources

• IRS: 401(k) limit increases to $24,500 for 2026; IRA limit increases to $7,500 (IR-2025-111, Nov. 13, 2025) — 2026 elective deferral limit of $24,500 up from $23,500, age 50+ catch-up of $8,000 up from $7,500, the $32,500 combined total, the ages 60-63 catch-up remaining $11,250, and the November 13, 2025 release date
• IRS Notice 2025-67 (2026 cost-of-living adjustments for pension plans), PDF — Verbatim 2026 figures: section 402(g)(1) increased from $23,500 to $24,500; 414(v)(2)(B)(i) from $7,500 to $8,000; 414(v)(2)(E)(i) remains $11,250 for individuals who attain age 60, 61, 62 or 63 in 2026; 415(c)(1)(A) from $70,000 to $72,000; 401(a)(17) from $350,000 to $360,000; and the Roth catch-up wage threshold from $145,000 to $150,000
• IRS: 401(k) and profit-sharing plan contribution limits — The $72,000 / $80,000 / $83,250 annual additions figures for 2026, the lesser-of-100%-of-compensation rule, the annual-additions composition list (elective deferrals, matching, nonelective, allocations of forfeitures), the instruction to aggregate deferrals across all plans you participate in, the one-employer-and-related-employer scope of the overall limit, and the $360,000 compensation limit
• 26 U.S.C. § 401 — Qualified pension, profit-sharing, and stock bonus plans (GovInfo, 2023 edition) — Section 401(k)(2)(C), the correct authority for the immediate nonforfeitability of elective deferrals: a qualified cash-or-deferred arrangement must provide "that an employee's right to his accrued benefit derived from employer contributions made to the trust pursuant to his election is nonforfeitable"
• 26 U.S.C. § 414 — Definitions and special rules (GovInfo, 2023 edition) — Section 414(v)(7)(A), which conditions the mandatory-Roth catch-up rule on "wages (as defined in section 3121(a)) for the preceding calendar year from the employer sponsoring the plan" exceeding the threshold — establishing both the FICA-wage basis and the per-employer measurement
• 26 U.S.C. § 411 — Minimum vesting standards (GovInfo, 2023 edition) — Three-year cliff vesting under 411(a)(2)(B)(ii); the 20/40/60/80/100% two-to-six-year graded table under 411(a)(2)(B)(iii), including 60% at four years; and the definition of a "year of service" under 411(a)(5)(A) as a plan-designated 12-consecutive-month period with 1,000 hours of service
• IRS: Retirement topics — vesting — Vesting schedules being set by the plan document, and the rule that all employees must be 100% vested at normal retirement age under the plan or on plan termination
• IRS: 401(k) resource guide — plan participants — 401(k) plan overview — "Elective deferrals are always 100% vested"; employer matching and nonelective contributions and the 50-cents-per-dollar match illustration; that a plan may require years of service for a vested interest; and that safe harbor plans must provide employer contributions fully vested when made
• IRS: Roth comparison chart — Pre-tax versus designated Roth contribution tax treatment, taxability of withdrawals federally and in most states, and the five-year-plus-age-59½/disability/death qualified-distribution test
• BLS: Employee Benefits in the United States — March 2026 (USDL-26-1534, dated archive, includes Table 1) — Private industry workers, March 2026: 72% retirement access and 52% participation; 70% access and 49% participation for defined contribution plans; and Table 1 access figures of 48% (lowest 25% of wages), 92% (highest 25%), 55% (1-49 workers) and 91% (500+ workers)
• BLS: Employee Tenure in 2026 (USDL-26-1532, dated archive) — Median employee tenure of 4.1 years in January 2026, up from 3.9 years in January 2024, and 3.0 years for workers aged 25 to 34

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