Sign up ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

The 2014 employee contribution limit is $17,500.

The 2014 total contribution limit is $52,000.

(Provided they're not capped earlier based on low income.)

Meaning the IRS has left room for a ~$35,000 employer contribution, a 2:1 match with no limit.

This seems a bit excessive. I was able to find a survey which said the average company contribution in the top 30 plans was over $31,000, so apparently there are companies, and their employees, who are contributing to the max, but I think the average company match is much lower.

Why is the gap between employee and total limit so high?

share|improve this question
Some companies, at some times, HAVE offered a 2:1 match to some employees... just as some have offered 2:1 match on some kinds of charitable contributions. What's average now -- or ever -- and what's been seen in the past are different things. – keshlam Jul 31 '14 at 3:22

1 Answer 1

up vote 5 down vote accepted

Because 401k's are also used by self employed. A person who has a schedule C profitable income can open a 401k and "match" in whatever ratio he wants, up to 25% of the net profits or the limits you stated. This allows self-employed to defer more income taxes to the future.

Why only self-employed? Good question. Ask your congressman. My explanation would be that since they're self-employed they're in much more danger of not having income, especially later in life, if their business go south. Thus they need a bigger cushion than an average W2 employee who can just find another job.

share|improve this answer
The question of "why only self-employed" here does not make sense. Regular businesses can also match at very high ratios, so there is nothing special about the self-employed except that they are likely to choose a high matching ratio. The laws don't particularly favor the self employed in this respect. – farnsy Jul 31 '14 at 20:51
@farnsy the "favor" is that for self-employed it is their money on both sides, while for regularly employed their money is only on the 17.5K side. I would like to be able to contribute up to $50k or 25% of my earnings - but I'm not self-employed, so I cannot. – littleadv Aug 1 '14 at 1:09

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.