At Extreme Investor Network, we are always looking for ways to help our readers optimize their personal finance strategies to reach their financial goals. One crucial aspect of financial planning is preparing for retirement, and investing in a 401(k) is a common way to do so.
When saving for retirement, investing sooner typically boosts growth over time. However, there is a potential pitfall to be aware of – maxing out your 401(k) too early in the year. Unless your plan has a special feature called a “true-up,” you could potentially miss out on part of your employer match.
Most 401(k) plans offer an employer match, where the employer deposits extra money into your account based on your deferrals. To receive the full employer match for the year, you usually need to contribute a certain percentage of your income each paycheck. However, not all plans offer a true-up feature.
A true-up is an additional deposit of the remaining employer match for employees who max out their contributions before the end of the year. It’s a valuable perk that can help you maximize your retirement savings. In fact, roughly 67% of plans that offer matches more than annually had a true-up in 2022, according to the Plan Sponsor Council of America’s survey.
Without a true-up, missing part of the company match can be problematic. For example, if you max out your 401(k) early in the year, you might miss out on thousands of dollars in employer contributions, potentially impacting your future growth significantly.
To avoid this issue, it’s crucial to review your summary plan description before setting your 401(k) deferrals. Check the “contributions” section to see if your plan offers a true-up feature. If it’s not mentioned, you can reach out to your company’s human resources department to confirm and potentially advocate for the inclusion of a true-up in the future.
By staying informed about the features of your 401(k) plan and strategically managing your contributions, you can ensure that you maximize your retirement savings and achieve your financial goals. Stay tuned to Extreme Investor Network for more expert insights and tips on personal finance and investing.