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What is a Matching Contribution?

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  • Written By: Ken Black
  • Edited By: Andrew Jones
  • Last Modified Date: 25 September 2016
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A matching contribution is simply a contribution that is matched with funds or services from another source. These matching contributions are done in many different situations, but one of the most common for many people is an employer-matched retirement fund, such as a 401(k) plan. Some sponsors may also pledge a matching contribution to a specific charity, and grants may also require some type of local match.

In the case of a retirement plan, many employees take advantage of a plan that gets a matching contribution from the employer. In the United States, the fund is often referred to as a 401(k) plan because of the section of U.S. Code that makes the program possible. Employers may match one to one, or may match a certain percentage. For example, if an employee contributes $1 US Dollar (USD), the employer may provide a match of 50 cents on each of those dollars.

Though the matching contribution is not the only benefit to a 401(k) plan, it is a major one. Other benefits include being able to defer taxes on those earnings until they are actually used. Individual retirement accounts (IRAs) have other advantages, but do not include a matching contribution from the employer. Therefore, if employees must choose between the two, the 401(k) often is the preferred option.

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For charity fund-raising campaigns, the matching contribution is often used to generate interest and encourage others to give. If a sponsor agrees to match $10,000 USD for a project if there is $10,000 USD provided through other donations, it helps create an incentive. It also provides a sense that the job can be accomplished, and may even help bring legitimacy to a fund-raising campaign. Often, it is a trust foundation or corporate sponsor that provides the matching contribution for such campaigns.

In addition to these situations, a federal government, state government, or some other government may demand a matching contribution for grant funds. The recipient of the grant is the one who will likely need to come up with the matching funds. This is done for things like school loans and even grants to local governments.

Matching contributions may be required in the form of money, but often the value of in-kind services can be charged. For example, if a city government receives a housing grant from the federal government to run a program, the time it takes the city staff to administer the grant program may be counted as in-kind services. The city can count that person's salary, during the time they are working on that particular project, as a match toward the required contribution.

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