A penalty 'for maxing out too early'
According to research from Vanguard in 2023, lump-sum investing, or putting larger amounts of money into the market sooner, can increase growth potential by maximizing time in the market.
However, not all 401(k) plans offer a true-up feature, so it's essential to understand your plan before front-loading contributions.
For instance, in 2023, about 67% of 401(k) plans that offer matches more than annually had a true-up, as per the Plan Sponsor Council of America's yearly survey in December.
Some clients have experienced a "penalty for maxing out too early" without a true-up, leading to "leaving money on the table," according to CFP Ann Reilley, principal and CEO of Alpha Financial Advisors in Charlotte, North Carolina.
For instance, if you're under 50, earning $200,000 per year, and your company offers a 5% 401(k) match without a true-up, maxing out early could result in missing out on a significant portion of your employer match.
Checking your 401(k) summary plan description can provide more insights into your account, Reilley suggested.
Higher deferrals, catch-up contributions for 2025
While many investors may struggle to max out employee deferrals due to other financial priorities, only about 14% of employees managed to do so in 2023, according to Vanguard's 2024 How America Saves report.
https://classifiedsmarketing.com/big-savers-can-maximize-their-employer-match-with-this-401k-feature/?fsp_sid=1823
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