True Me Up, Baby!
I got a very interesting email from the CEO of my company this week. No, it wasn’t to congratulate me on a job well done. It was to tell me of a change in policy for 401k matching. They’re calling it the 401k True-Up.
Basically, if you are a front-loader on your 401k plan, i.e. you make contributions to your 401k, and you max out mid-year, you are actually losing some corporate matching funds during the last few months of the year. Your company matches say 50% of the first 5% you contribute, i.e. another 2.5%, but if you front-load your contributions, you will actually lose out on 2.5% on paychecks at the end of the year when you stop contributing. (A saw a comment about this somewhere, but I can’t find it.) EDIT: It was here at IRA!
My company will ‘true-up’ your account by making a lump-sum contribution to your account at the end of the year for the ‘lost’ matching funds if you have front-loaded your account. I think that’s rather nice of them. It’s good to contribute early and often, and it’s nice not to be penalized for putting in your $14K+ into your account in the first 10 months of the year.
Yeah, NO, I’m not contributing the max. But it’s very nice to know that my company is unveiling this new benefit. Sure it’s really for people who are socking away a ton of money, but I could see myself putting 20-23% of my check into my plan, then later stopping contributions when I hit the limit and taking all the extra cash as Christmas money!
Will your company true-up? Is this some crazy cool extra special benefit? Or is my company behind the 8-ball? I think it’s cool and I’m happy for it, even if I’m not going to be able to take advantage of it for a little while yet.
IRA wrote:
Yeah, I frontloaded last year because I thought I was going back to school full-time in the fall. One of my helpful readers pointed out that I lost out on the full company match. You can read about it here.
http://inchoaterandomabstractions.blogspot.com/2006/08/youre-rightim-wrong.html
Posted on 24-Jan-07 at 6:00 pm | Permalink
mapgirl wrote:
YES!!! That was the post I was looking for!
Posted on 24-Jan-07 at 9:40 pm | Permalink
BD wrote:
Your post prompted me to ask - no, my company does not true up at the end of the year. They describe this as a “glitch” but I suspect it’s a retention strategy. I’m in an industry with lots of turnover.
Posted on 25-Jan-07 at 9:01 am | Permalink