Retirement
The 401(k) True-Up Provision: Don’t Lose Free Employer Money by Saving Too Fast
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Result: Without True-Up, you lost $5,000 of free money by saving too fast.
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The 401(k) True-Up Provision: Don’t Lose Free Employer Money by Saving Too Fast
CORE INSIGHTS
- The Pacing Trap: Maxing out your 401(k) early in the year can stop your employer match for the remaining months. “Speed” can cost you thousands.
- True-Up Safety Net: A “True-Up” provision means the employer will fix this mistake at year-end. If your plan has it, you can front-load without fear.
- Manual Calculation: If your plan lacks a True-Up, you must calculate the exact contribution % to hit the max ($23,500) on your final December paycheck.
For disciplined savers, reaching the IRS limit is a primary goal. However, most employers match on a “per paycheck” basis. If your contribution drops to 0% in October, the employer match also drops to $0. Without a True-Up, that money is lost forever.
What-If Scenario: The Eager Saver ($200k Salary)
| Timeline | Contribution | Match (5%) |
|---|---|---|
| Jan – June | $23,500 (Maxed) | $5,000 |
| July – Dec | $0 (Stopped) | $0 (Missed) |
Visualizing the Matching Gap
*Figure 1: The Gap. Green line (True-Up) catches up at year-end; Red line (No True-Up) flatlines early.*
Strategic Action Steps
1
Check the SPD
Search your Summary Plan Description for “True-Up” or “Reconciliation.” If unsure, email HR. This one clause determines your strategy.
Search your Summary Plan Description for “True-Up” or “Reconciliation.” If unsure, email HR. This one clause determines your strategy.
2
Calculate Perfect Pace
If no True-Up:
If no True-Up:
($23,500 - Current Balance) / Remaining Paychecks. Set your % to hit this amount exactly.
3
Monitor Bonus Settings
Bonuses can accidentally max you out early. Consider turning off 401(k) contributions for bonuses to preserve space for regular payroll matching.
Bonuses can accidentally max you out early. Consider turning off 401(k) contributions for bonuses to preserve space for regular payroll matching.
The Bottom Line: Who Should Choose What?
- Plan Has True-Up: Max out as early as you want. Front-loading is fine.
- Plan Has NO True-Up: You must be a “Pacing Sniper.” Spread contributions evenly until Dec 31st.
Frequently Asked Questions
What is a True-Up Provision?
A safety net clause. If you max out early and miss matches, the employer deposits the missing match as a lump sum at year-end.
Why does front-loading hurt the match?
Employers match per pay period. If you contribute $0 in a pay period (because you maxed out), the employer matches $0. You miss the free money for those weeks.
How do I check if I have a True-Up?
Check your Summary Plan Description (SPD) for terms like “Annual True-Up” or “Lookback Match.” If absent, assume you don’t have it.
Disclaimer: This content is for informational purposes only. Consult your HR department.