One of the biggest benefits of participating in an employer's 401(k) plan is getting access to a company match.
Sure, there's also the convenience of having those contributions taken as payroll deductions automatically. For some people, that's the ticket to staying on track with retirement savings.
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But these days, most IRAs allow you to automate contributions as you get paid. So it's probably fair to say that the main draw of 401(k) plans is employer matching dollars.
One little-known rule, however, could end up costing you some of those matching dollars if you aren't careful. So it's important to do what you can to avoid that trap.
What does your employer's matching schedule look like?
When you have access to a 401(k), you'll hear all the time that it's important to understand what your match maxes out at and whether it's subject to a vesting schedule. But it's also important to understand when your employer actually makes matching contributions to your 401(k), and whether it has what's known as a true-up policy.
It's pretty common for employers to match contributions every pay period. But if you don't make your 401(k) contributions according to that same schedule, you could lose out on some of that money.
For example, let's say your maximum 401(k) match for 2026 is $3,000, so you decide to contribute $3,000 to your workplace plan. Let's also assume you get paid once a month.
If you have $250 deducted from your paycheck each month that goes into your 401(k), and your employer does its match each pay period, you should get your full $3,000 match after 12 months.
But what if you stray from that schedule? What if you like to front-load your 401(k) contributions so that instead of contributing $250 each month to your workplace plan, you contribute $500 a month for the first six months of the year? Or, what if your annual bonus gets paid in February, so you decide to use it to fund your 401(k) entirely?
If your company's policy is to match contributions every pay period, and you finish making contributions early in the year, you might miss out on per-paycheck matching for the rest of the year. That's why it's important to understand how your match is doled out, and to see if your company has a true-up policy.
A true-up ensures that you'll receive the full 401(k) match you're eligible for even if you stop funding your retirement plan early in the year. Think of it as an extra contribution your company makes so you don't lose out on any portion of your match you should otherwise be entitled to.
Get all of the information about your 401(k) match
Your 401(k) match could be one of your most valuable tools for building retirement wealth. So you don't want to risk squandering a portion of it.
To avoid that, talk to your benefits department about how your company 401(k) match works. If there's a true-up policy, you shouldn't have much to worry about. Otherwise, you may need to change the timing of your 401(k) contributions to ensure that you don't end up leaving any matching dollars on the table.
