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What is a "true-up" contribution?

If your employer has a "true-up" provision in your 401(k) plan, this feature allows the company to fund the difference in match contributions for participants who may not have received the full match they are entitled to for the year.  This occurs when an employer matches employee contributions throughout the year on a per-payroll basis, rather than a single matching retirement contribution at year-end. In these cases, employees who fail to make a plan contribution during any payroll period will miss out on the match for that period.  This usually happens when an employee "maxes out" their account before year end or when employees spread their contributions out unevenly during the year.  Even if they contribute enough to the plan to receive the full match, they will miss out on a portion.  

A true-up calculation typically occurs after year-end and the employer will make an additional contribution on behalf of any employee who may missed out on some contributions.  It's a way for employers to ensure employees don't get shortchanged and receive the full matching contribution they are entitled to.  It's important to note that employers are not required to make a true-up contribution.  If your employer does not provide this, the best way to ensure you receive your full match is to make sure you make a contribution every pay period throughout the year.  If you plan to "max out" your account, simply divide the maximum contribution (e.g. $19,000 in 2019) by the number of pay periods your company has and contribute that amount each period.  For instance, if your company has 24 pay periods, you would want to make a $796.67 contribution every pay period ($19,000/24).

Zack is the author of this solution article.

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