Example: Set Up 401(k) with Employer Match and Multiple Limits (USA)
John works for Global Modern Services, Inc. and earns 114,000 USD/year, or 9,500 USD/month.
John elected to contribute the maximum:
- 20% of John's monthly salary to the 401(k) pretax retirement savings.
- 15% of the monthly salary to John's 401(k) Roth post-tax retirement savings.
John's 401(k) retirement savings plan includes an employer match on 401(k) pre-tax and 401(k)
Roth employee contributions. The employer match contribution is 100%, capped at 6%,
subject to the IRS annual compensation limit. The employer match stops when John
reaches the IRS deferral limit across both deductions.
The payroll administrator for Global Modern Services must ensure that these 2021 limits apply
to the contributions:
Deduction | Annual Limit (USD) |
|---|---|
401(k) | 19,500 (shared with Roth) |
401(k) Roth | 19,500 (shared with 401(k) |
401(k) Employer Match | 6,840, up to 6% of annual salary |
The payroll administrator creates 3 deductions that reference each other to manage
deduction limits:
Workday starts deducting ongoing payments. When the sum of the deductions exceeds the annual
limit, Workday takes the deductions in this order up to the limit for each type of
deduction:
- 401(k) pretax
- 401(k) Roth post-tax
- 401(k) employer match