Making Contributions to a 401(k) PlanBoth employers and employees may contribute to a 401(k) plan. Contributions to a 401(k) plan can take several forms:
- Matching contributions. These are contributions that an employer makes to an employee's plan after the employee has contributed (they are also called non-elective contributions). 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. The employee cannot take the employer's matching contribution as current cash compensation.
- 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.