Maxing out your 401(k) in the beginning of the year might not be the best strategy…
Let’s say you to front-load your 401(k) contributions and hit the $24,500 limit by June. In July, your contribution drops to 0% because you hit the IRS max.
Because your contribution is 0% for that pay period, the employer’s 5% match is also 0. The 401(k) match is done per paycheck.
If you max out early and your employer does not have a true-up provision, then you won’t get the full match (basically leaving free money on the table).
How to check if you have this problem:
- Look for the Summary Plan Description. Search for the words “True-Up”
- Ask HR “If I maximize my elective deferrals before the end of the year, does the plan include a “True-Up” contribution to ensure I receive the full employer match?”