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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?

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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 at 3:22

1 Answer 1

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.

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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 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 at 1:09

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