When it comes to saving for retirement, investing as soon as possible is key to maximizing growth over time. However, there is a potential pitfall that many employees may encounter if they max out their 401(k) contributions too early in the year – missing out on their employer match. This could result in significant losses in potential earnings in the long run.
In the realm of 401(k) plans, most offer an employer match, where the employer deposits additional money into the account based on the employee’s deferrals. Typically, to receive the full employer match for the year, employees must contribute a certain percentage of their income each paycheck. However, some 401(k) plans come with a special feature known as a “true-up.” This feature includes an additional deposit of the remaining employer match for employees who max out their contributions before the end of the year.
Having a true-up feature in your 401(k) plan can be a significant advantage. According to a recent survey by the Plan Sponsor Council of America, approximately 67% of plans that offer matches more than annually had a true-up in 2022. This feature is more common in larger plans and can help employees avoid missing out on part of their employer match when maxing out their contributions early.
Without a true-up feature in your 401(k) plan, employees run the risk of missing out on a portion of their employer match. For example, if you max out your contributions early in the year and your plan does not have a true-up, you could potentially miss out on thousands of dollars in matching contributions. This missed opportunity can significantly impact your retirement savings growth over time.
To avoid missing out on your employer match, it’s crucial to understand whether your 401(k) plan has a true-up feature. Experts recommend checking the “contributions” section of your plan’s summary plan description to see if this feature is mentioned. If it’s not clear, you can always reach out to your company’s human resources department for clarification. By confirming the presence of a true-up feature in your plan, you can ensure that you are maximizing your retirement savings potential.
Maximizing your retirement savings through your 401(k) plan requires careful consideration and understanding of the plan’s features, such as the true-up. By taking the time to educate yourself on how your plan works, you can avoid potential pitfalls and ensure that you are on the right track towards a secure financial future.