What's the True Up Provision?
Michael Hart | June 25, 2025
I recently spoke with a client—we’ll call him Tim—who proudly told me he was contributing 20% of his gross income into his 401(k). He was expecting me to congratulate him on his discipline. Instead, I told him it worried me.
Naturally, Tim was confused. But here’s why his strategy concerned me—and why it might concern you too.
THE BASICS
Tim is 42 years old and makes $175,000 a year. Contributing 20% of his salary means he’s on pace to put away $35,000 into his 401(k) in 2025.
But Uncle Sam only allows $23,500 in 401(k) contributions for 2025 (if you’re under 50). Exceed that limit, and you could run into some serious headaches.
PROBLEM #1: OVERCONTRIBUTION AND DOUBLE TAXATION
About half of 401(k) plans will automatically stop your contributions once you hit the IRS limit. If your plan doesn’t, you’re responsible for removing the excess—and any earnings on those excess contributions—or you risk double taxation.
Tim assured me his company will cut him off at $23,500, so we dodged that bullet.
PROBLEM #2: MISSING OUT ON EMPLOYER MATCHING CONTRIBUTIONS
This is where things got tricky.
Tim’s employer offers a 50% match on the first 8% of his salary—that’s potentially $7,000 of free money every year.
But Tim was front-loading his contributions. At $1,346.68 every two weeks, he’ll hit the IRS cap after 17 pay periods, leaving 9 pay periods where he’s no longer contributing—and no longer receiving any employer match.
Why? Because Tim’s plan doesn’t have a “true-up” provision.
WHAT’S A TRUE-UP PROVISION?
A true-up is a feature in some 401(k) plans that ensures you get your full employer match at year-end, even if you contribute unevenly throughout the year.
Without it, if you stop contributing early, you miss out on additional matching dollars for the rest of the year.
THE IMPACT
Because Tim’s plan doesn’t offer a true-up, he’ll miss out on 9 pay periods’ worth of 4% employer matching contributions—about $2,500 this year alone.
If this happens every year for the next 23 years until retirement, factoring in investment growth, Tim could leave almost $165,000 on the table.
THE LESSON
Only about half of 401(k) plans in the U.S. have true-up provisions. If you’re front-loading your contributions—or contributing heavily—make sure you understand how your plan works.
ASK:
Does your plan have a true-up provision?
Are you maximizing both your contributions and your employer match?
It’s not just about how much you contribute—it’s about how you contribute. Don’t leave free money on the table.
Creating an overall retirement plan
All of this is important, but what plays an even bigger part in determining your retirement success or failure is having an overall financial plan. Before you stop working, you should gain a picture of:
What the income is likely to be, after-tax
What your expenses will be
How you’ll get health insurance
What major contingencies could occur (health risks, home maintenance costs, caring for loved ones, etc.)
If you want our help in creating a retirement plan, please send me a note and let’s talk.
-Michael
Michael Hart, CFP® is an advice only financial planner for mid-career professionals in Princeton, New Jersey.
P.S.
We are fee-only, flat fee advisors in Princeton, NJ who help mid-career professionals build wealth. If you’d like to meet with us to discuss retiring in New Jersey, how to create a financial plan for retirement, or any other topics related to your wealth, please set up a time.
Disclaimer
Investment advisory services are offered through Advice Only, Public Benefit Corporation, DBA Open Book Financial Planning, a Registered Investment Advisor in the State of CA and in other jurisdictions where registered or exempted (CRD# 334039). This communication is not intended as an offer or solicitation of any financial instrument or investment advisory services. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request and at www.adviceonly.com
